New buyers face high insurance premiums, obstacles to access

Soaring homeowners insurance premiums and the lack of availability of insurance coverage have become significant new barriers to homeownership, especially for new home buyers who may have no credit history and existing homeowners who may have filed as few as one or two legitimate water-related claims, said Cathy Whatley president of the National Association of Realtors at a Feb. 26 National Press Club media briefing.

Whatley, owner of Buck & Buck Inc. in Jacksonville, Fla., questioned the use of credit scores by insurers, and the use of the Comprehensive Loss Underwriting Exchange database, which contains claim histories of both individuals and properties for a five-year period.

Many borrowers who can qualify for mortgages are being turned down for homeowners insurance, and others are finding that phone calls to their insurance agent are recorded on their CLUE file and can jeopardize their coverage.

"The crisis in insurance is putting homeownership beyond the reach of many young families, minorities and other Americans who have yet to achieve the American Dream. Many factors are contributing to the crisis, but the use of credit scores to deny coverage raises questions about fairness and equality, despite the insurance industry's acknowledgment that there has been no research which has proven a causal relationship between credit history and the likelihood that one will file an insurance claim," Whatley said.

Whatley also expressed concerns about the overall impact of the premium price increases on the real estate industry.

According to the Insurance Information Institute, the average cost of homeowners insurance rose 8 percent last year and is expected to rise an additional 9 percent in 2003. While the average increase may seem unremarkable, many homeowners have seen their premiums soar as much as 30 percent to 70 percent.

"This sudden run up in insurance prices could place at risk the housing economy, which has been the single bright spot in the national economic picture," Whatley said.

Similar problems of insurance availability and affordability also have affected the multifamily and commercial real estate sectors. "Increases in insurance premiums for rental housing have dramatically raised expenses for providers of affordable rental housing," Whatley said. "These increases obviously impact the availability of affordable rental housing options."

NAR has been investigating the insurance crisis since last fall and the association currently is considering ways to help alleviate the impact upon consumers.

Whatley said consumers considering a real estate purchase should not wait until the last minute to apply for insurance.

"In light of today's insurance crisis, home buyers should not take their insurability for granted," Whatley said.

Whatley discussed NAR's other legislative priorities for the year, including passage of the Homeownership Tax Credit, promoting housing opportunities for all and preserving the separation between commerce and banking regarding the proposed Federal Reserve/Treasury rule that would allow banks to enter real estate.