mold and insurance: truth and consequences august 2002 robert p. hartwig, ph.d., senior vice...

Mold and Insurance:

Truth and Consequences

August 2002

Robert P. Hartwig, Ph.D., Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: (212) 346-5520 Fax: (212) 732-1916 [email protected] www.iii.org

Presentation OutlineMold, the Consumer & the Insurance Industry

• Overview of Mold Issue• Insurers & The Great Pyramid of Mold

Mold, Hype, Hysteria & Trial LawyersTexas: Ground Zero for Mold Is Florida the Next Texas?

Let the Florida Insurance Consumer Beware!California: Mold’s Going Hollywood

• The Economics of Mold How did we get into this mess? Availability & Affordability Why Homeowners & Their Insurers Can’t Afford Mold Economic Repercussions

• Options & Solutions

Overview of Mold Issue

• Complex issue involving

Homeowners—fear of mold; hysteria in some areas

Businesses & Workers—property, construction, WC & liability

issues

Science—taking a back seat to fact; misinformation

Astounding array of ailments attributed to mold

Trial Lawyers—profiting from fear and hype over mold

Remediators—profiteering?

Media—media attention increases as mold claims increase

Regulators—struggling with the issue; options limited

Great Pyramid of Mold

Source: Insurance Information Institute



The word “mold” is derived from the old Old Norse word for “fuzzy”

Mold: A Fact of LifeANCIENT ENEMY?

•Existed for at least 400 mil. yrs.•Entire evolution of human species occurred in presence of mold•100,000+ species identified•1,000 found in U.S., e.g.

Stachybotrys, Cladosporium, Penicillium and Aspergillus

•Minimal Growth Requirements Water (humidity/damp OK) Food (any organic substance) Appropriate Temp (wide range) Lack of ventilation

Conclusion Darwin Would Reach: Mold didn’t cause the mold crisis

Stachybotrys chartarum

The Accused: StachybotrysALLEGED ILL-EFFECTS•Burning eyes•Headache•Nausea•Nose bleeds•Allergic Reactions•Asthma•Exhaustion•Sinus infections•Cognitive disorders•Pulmonary hemorrhage•Liver damage•Central nervous system damage•Brain damage•Cancer•Death


The Accused: Stachybotrys

List of Known Maladies•“There are very few case reports that toxic molds inside homes can cause unique or rare health conditions…” “The common health concerns from molds include hay-fever like allergic symptoms.”

Centers for Disease Control and Prevention


The Accused: Stachybotrys

Recent CDC Testimony•“..CDC reviewers and an external panel of experts determined there was insufficient evidence of any association between exposure to S. atra or other toxic fungi and idiopathic pulmonary hemosiderosis….”

•Flooding at Turtle Mountain (ND) Indian Reservation in July 2001 residents though mold contamination might be contributing to increase in illness: “An interim report identified several existing hazards unrelated to mold and made recommendations to address those hazards.”

Written statement of Stephen C. Redd, MD, Chief, Air Pollution and Respiratory Health Branch, Centers for Disease Control and Prevention, before the Subcommittees on Oversight and Investigations and Housing and Opportunity, US House of Representatives, July 18, 2002.


HOW DID WE GET HERE?

Texas: Mold’s Ground Zero

HO Loss Ratio Trendin Texas*

59.3%

45.4%50.6%

82.4%

1997 1998 1999 2000

Source: NAIC, Insurance Information Institute

* Excludes loss adjustment expenses

Problems first observed in overall loss trends

$0

$100

$200

$300

$400

$500

$600

$700

$800

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*

Source: Texas Department of Insurance * 2001 (estimate based on Jan. - Mar. data)

Texas: Paid Losses for Water Damage Claims

Sharp increase in water losses were obviously part of the problem.

$0

$50

$100

$150

$200

$250

$300

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*

Av

era

ge

Wa

ter

Lo

ss

pe

r P

olic

y

-20

-10

0

10

20

30

40

50

60

70

% C

ha

ng

e

Average Water Loss per Policy

% Change

Source: Texas Department of Insurance; Insurance Information Institute

* 2001 (estimate based on Jan. - Mar. data)

Texas: Average Water Damage Loss per Policy

TX: Estimated Total Number of Mold Claims

1,050

1,9331,627

2,4724,033

7,145

11,318

14,706

0

3,000

6,000

9,000

12,000

15,000

00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4

Source: Texas Department of Insurance; Insurance Information Institute estimates.

The number of mold claims rose 1,306% between 2000:I and 2001:IV

TX: Mold Claim Frequency*(# claims per 1,000 policyholders)

1.7

3.22.7

4.1

6.7

11.7

18.4

23.6

0

5

10

15

20

25

00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4


The frequency of mold claims rose 1,286% between 2000:I and 2001:IV

TX : Average Cost per PolicyholderDue to Mold (per year)

$23.32

$48.57 $64.05

$114.39

$242.31

$404.36$444.35

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3


Texas “Mold Tax”: Up to $444 per Policyholder per Year

The average cost per policyholder increased 1,805% between 2000:I and 2001:III

TX: Average Cost Per Mold Claim*

$13,719$15,402

$24,024

$28,061

$36,213 $34,538

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

01:Q1 01:Q2 01:Q3 01:Q4 02:Q1 02:Q2

*Includes loss and loss adjustment expenses.Source: Texas Department of Insurance; Insurance Information Institute estimates.

The average cost of mold claims rose number of mold claims rose 152% between

2000:I and 2001:II

TX: Cumulative Total Losses from Mold Claims*

$14$44 $83

$153

$299

$546

$820

$1,007

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4

*Includes loss and loss adjustment expenses.Source: Texas Department of Insurance; Insurance Information Institute estimates.

Mold claim costs rose 560% in 2001 vs. 2000

$ Millions

Texas Accounted for the Vast Majority of New Mold Cases in 2001

Claims Arising Inside

TX70%

Claims Arising

Outside TX 30%


Is Florida the Next Texas?

A Market Already Under Stress

Overview of Mold Issue - FL• Complex issue, more complicated in FL

FL’s unique hurricane exposure Peninsula in the middle of “hurricane alley” Hurricane Andrew - nearly 200,000 water claims

FL’s unique litigation environment One way attorney fee statute, no need to prove bad faith

– TX law requires proof of bad faith to award attorney fees Contingency risk multipliers Bad Faith statute does not provide for reasonable basis defense

– TX law provides “legitimate dispute” defense

Hurricanes + bad litigation environment + Mold Equals disaster for FL insurance consumers and the industry Equals decreased availability and decreased affordability

FL property insurance rates already among highest

Why TX is Relevant to Florida

• We Can Learn From TX, Avoid a Crisis• Coverage Differences

TX policy covered “seepage” type water losses In essence a home maintenance policy

FL policy covers “sudden & accidental” losses Burst pipe, hurricane, windstorm

• TX Mold Claims and Costs Spike Since 2000 No Scientific ExplanationBefore 2000, mold claims and costs never a problemTX policy pricing did not envision such mold costsTX homeowner rates now include increased mold costs

Up to $444.00 “mold tax” for TX homeowners TX now has highest homeowner prices in the nation!

Why TX is Relevant to Florida• FL Water/Mold Claims & Costs Increasing

No Scientific or Meteorological Explanation No Recent hurricane or windstorm

FL policy pricing does not envision such mold costsFL policy prices will rise if TX mold “claiming behavior”

finds its way to the southeast

• FL Homeowner Rates Already Under StressHurricanesSinkholesMold anyone?

• FL Homeowner Rates 3rd in the Nation3rd highest rates do not include the mold “stressor” Let’s learn from TX before there is a crisis

Average Annual Insured Wind Losses*(Top 10 States, $ Millions)

$1,423.0

$615.0

$196.0$109.0 $77.0 $64.0 $62.0 $61.0 $61.0 $51.0

$154.0

$0

$250

$500

$750

$1,000

$1,250

$1,500

FL TX LA NC MS MA SC AL NY CT AllOther

*Normalized losses adjusted for inflation, housing density, wealth and wind insurance coverage, based on historical data for 100-year period 1900-1999.Source: Tillinghast-Towers Perrin

Louisiana6.8%

N. Carolina

3.8%

Mississippi2.7%

All Other15.7%

Texas 21.4%

Florida49.5%

Distribution of Annual LossesFL can’t afford mold—already

stressed by hurricanes!

10 Costliest Disasters in U.S. History(by insured loss, 2001 $)

$40.2

$19.6$16.3

$5.9$3.2 $2.9 $2.5 $2.4 $2.1 $2.0

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Ter

rori

st A

ttac

k:

Sep

t. 2

001*

Hu

rric

ane

An

dre

w:

Au

gust

1992

Nor

thri

dge

Ear

thq

uak

e:Ja

n.

1994

Hu

rric

ane

Hu

go:

Sep

t. 1

989

Hu

rric

ane

Geo

rges

: S

ept.

1998

Hu

rric

ane

Bet

sy:

Sep

t. 1

965

TS

All

ison

: Ju

ly20

01

Hu

rric

ane

Op

al:

Oct

ober

199

5

Hu

rric

ane

Flo

yd:

Sep

t.19

99

Hu

rric

ane

Inik

i:S

ept.

199

2

$ Billions

*Estimate includes propertyand business interruption losses as well as liability, workers comp, life, aviation and other coverages.Source: Insurance Services Office, Insurance Information Institute.

Insured Losses in Florida ifHurricane Andrew Hit Today

Source: Best’s Review, June 2002 (EQECAT)

$20.3

$36.2

$46.7 $48.2 $46.3$43.5

$0$5

$10$15$20$25$30$35$40$45$50

Andrew'sOriginal

Path

Moved 0.1degreeNorth

Moved 0.2degreesNorth




Insu

red

loss

es, $

Bil

lion

s

•Each 0.1 degree equals about 7 miles

•A path of 0.3 degrees north of Andrew’s original location would create a direct hit on Miami

•Estimates are losses in today’s dollars after application of deductibles.

Estimated New Construction in Miami-Dade County, 1992-2001

$3,095.3

$12,981.8

$3,069.7

$305.5

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

South Miami-Dade All Miami-Dade

($ M

illi

ons)

New Residential Exposure New Commercial Exposure

$3.4 Billion

$16.1 Billion

Source: Best’s Review, June 2002 (International Hurricane Center, Florida International University), Ins. Info. Institute

Huge build-up in exposure in Florida

since 1992

•81% residential

•19% commercial

Summary of FL Mold Problem

• Unless solutions are put into place:FL property insurance rates will skyrocketFL property insurance will be far less availableLiability insurance less available and affordable

• FL Mold losses Historically, not major factor in property insurance costs or

ratesReal mold claims not frequent or largeMajority of mold never covered by insurance

Rather, homeowner maintains home to prevent mold

• FL’s unique hurricane and litigation environmentCombination may create mold crisis worse than TX

• FL must act now

California: Mold Problem is Shaking the State

California: Surging Water Claim Frequency and Costs:

Symptom of Growing Mold Problem

$206.1

$276.5$286.6

$383.7

$430.6

24%

29%

27%

32%

31%

$100

$150

$200

$250

$300

$350

$400

$450

1997 1998 1999 2000 2001

20%

22%

24%

26%

28%

30%

32%

34%

Paid Water Losses ($ Mill) Water Claims as % of All Homeowners Claims

Source: Insurance Information Network of California; Insurance Information Institute

•Water losses paid rose 109% from 1997 to 2001 and 50% since 1999

•Water claims accounted for less than 1/4 of all HO claims in 1997, now they account for nearly 1/3.

California may be in a drought, but homeowners say they’re drowning

Sharply Rising Average Water Claim Cost: Mold Symptom

$2,537$2,631

$3,339

$3,719

$4,730

$2,000

$3,000

$4,000

$5,000

1997 1998 1999 2000 2001

Source: Insurance Information Institute based on data from the Insurance Information Network of California;

The cost of the average water loss in CA surged 27% in 2001 and 80% since 1998



For 399,999,998 out of the past 400 million years “mold” was was not

an issue for litigation.

U.S.: Documented Toxic Mold SuitsFormer

Owners of Sold Homes

10%Bad Faith

Against Insurers

50%Builder for

Construction Defects

20%

HO Associations

for Improper Maintenance

20% Source: www.toxlaw.com; Guy Carpenter

1,000 Cases

2,000 Cases

5,000 Cases

2,000 Cases

Average Jury Awards1994 vs. 2000

419759

187 333

1,140 1,185

1,744

1,168

1,727

269698

3,482 3,566

6,817

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Overall BusinessNegligence

VehicularLiability*

PremisesLiability

MedicalMalpractice

WrongfulDeath

ProductsLiability

($00

0)

1994 2000

Source: Jury Verdict Research; Insurance Information Institute.

General abuse of tort system has created ideal environment for growth of mold suits

Cost of U.S. Tort System($ Billions)

Source: Tillinghast-Towers Perrin; Insurance Information Institute estimates for 2001/2002 assume tort costs equal to 2% of GDP. 2005 forecasts from Tillinghast.

$129 $130$141 $144 $148

$159 $156 $156$167 $169 $179

$198 $204

$298

$0

$50

$100

$150

$200

$250

$300

$350

90 91 92 93 94 95 96 97 98 99 00 01* 02E* 05F

Tort costs consumed 2.0% of GDP annually on average since 1990, expected to rise to 2.4% of GDP by 2005!

Tort costs equaled $636 per person in 2000!

Expected to rise to $1,000 by 2005

Source: The Austin Chronicle, August 10,2001

Some People Are Getting Rich Off Mold

Mold is no joke! There may be billions of mold spores floating around your home or office. You can't catch them with a filter. You can't kill them with insecticide. You can't blow them away with Lysol® spray. They are as elusive and persistent as a dust mite.

But what molds can do to you and your family or coworkers is easily detected: Headache, nausea, dizziness, and respiratory distress. Read the next column to learn a little about SBS (Sick Building Syndrome). For more facts about your environment, look at our Info & Links page.

If you need help now, call or complete and send the form on our contacts page. We are able to handle any size project, and we can start immediately!

ACTUAL ADVERTISEMENT

Mold Plaintiffs Want More than Rebuilding Cost of WTC!

(Billions)

$2.5

$2.7

$6.0

$6.7

$12.0

0 5 10 15

Mold Suits Against HenryPhipps Plaza Apt. Complexin NYCCost to Rebuild WTCComplex

GDP of Ethiopia

Life Insurance Payments for3000 Who Died in WTC

Tropical Storm Allison



Source: Insurance Information Institute based Nexis search.

Since January 1, 2000, more than 8,000 articles have been published on the subject of “toxic” mold

Increased Media Attention

1,2551,505

1,708

2,922

3,685

0

1,000

2,000

3,000

4,000

1998 1999 2000 2001 2002*

Sources: Insurance Information Institute based on Nexis search.* 2002 figure is estimate based on data through May 17.

More Than 8,000 “Toxic Mold” Articles Since 2000

Source: New York Daily News, September 10, 2001

Source: New York Times Magazine, August 12, 2001

Source: New York Daily News, September 10, 2001

Media & Trial Lawyers:Fanning the Flames of Fear

•A contractor, wears a special suit as she checks for mold in the floor of a house in Flour Bluff, TX. Mold is becoming a concern for area homeowners.

•Piece of air conditioning duct board from a house infested with mold. Air conditioning reduces humidity and makes it harder for mold to grow, but increased use of paper products in homes, coupled with sealing of buildings for energy efficiency, encourages mold growth. Air conditioners then help to spread the spores. The family has sued their insurance company for money to clean and rebuild the house.

Source: Corpus Christi Caller Times

•

•This woman blames mold growing in her Flour Bluff, TX, house for some of her family's ailments. A suit against their insurance company goes to trial Nov. 5.

•A family believes the mold in their home was causing nosebleeds and respiratory problems for their children. They now live in a hotel room.

Media & Trial Lawyers:Fanning the Flames of Fear


2001: Increased Media AttentionIn the Papers a Year Ago: “Haunted by Mold”

New York Times Magazine, August 12, 2001

“Beware: Toxic Mold” Time Magazine, July 2, 2001

“Insurers, Builders Criticized Over Mold” Austin American Statesman, June 27, 2001

“Mold Problems Spur Hearings Across Texas” Corpus Christi Caller Times, June 17, 2001

“Insurers Blanch at Proliferation of Mold Claims” Wall Street Journal, June 3, 2001

“Insurer Must Pay Family $32 Million” San Antonio Express-News, June 11, 2001

2002: Financial & Market Consequences

Look at What’s in the Papers Today: “Mold Claims Soar"

Miami Herald, July 29, 2002 "State Farm Halts New Policies [in FL]"

Tampa Tribune, June 29, 2002 “Hit With Big Losses, Insurers Put Squeeze on Homeowners”

Wall Street Journal, May 14, 2002 “Can Toxic Mold Spoil a Stock Offering?”

Business Week, April 29, 2002 “Apartment Owners Face Growing Liability”

Wall Street Journal, April 24, 2002 “State Farm Won’t Write New Homeowners Policies [in CA]”

Los Angeles Times, April 23, 2002 “Allstate’s Net Income Drops 15 Percent”

Wall Street Journal, April 18, 2002 “Oklahoma Home Insurers Limiting Fungus Coverage”

The Oklahoman, April 2, 2002 “Prices for Auto and Home Insurance are Rising Sharply”

New York Times, March 26, 2002 “Some Insurers Ending Coverage for Home Builders”

Minneapolis Star Tribune, February 16, 2002

“Heeeeeeere’s Stachy…”Mold Goes Hollywood

•Ed McMahon filed $20 million suit against insurer & mold remediation contractor•Ed only gave away $10 million in sweepstakes•Says mold sickened him, his wife and staff•Says mold killed Muffin the family dog•Alleges breach of contract, negligence and intentional infliction of emotional distress•Nearly 100 articles between April 10 and May 17, 2002!

“Ed McMahon Sues Over Toxic Mold Invasion,” --USA Today, April 11, 2002

Mold:Gone Hollywood

309

191

97

0

50

100

150

200

250

300

350

Erin Brockovich Melinda Ballard Ed McMahon

Sources:Insurance Information Institute based on Nexis search.

NUMBER OF ARTICLES CITING MOLD AND…

Trial Lawyers:Fanning the Flames of Fear

•A contractor, wears a special suit as she checks for mold in the floor of a house in Flour Bluff, TX. Mold is becoming a concern for area homeowners.

•Piece of air conditioning duct board from a house infested with mold. Air conditioning reduces humidity and makes it harder for mold to grow, but increased use of paper products in homes, coupled with sealing of buildings for energy efficiency, encourages mold growth. Air conditioners then help to spread the spores. The family has sued their insurance company for money to clean and rebuild the house.


•

•This woman blames mold growing in her Flour Bluff, TX, house for some of her family's ailments. A suit against their insurance company goes to trial Nov. 5.

•A family believes the mold in their home was causing nosebleeds and respiratory problems for their children. They now live in a hotel room.

Trial Lawyers:Fanning the Flames of Fear


Fanning the Flames of Fear

A man points to mold growth on the tiles of his bathroom. Mold is able to grow as long as it has a cellulose-based food source and water.


This Still Works!

THE ECONOMICS OF MOLD:

WHAT WILL MOLD COST POLICYHOLDERS & THE INSURANCE INDUSTRY ?

Mushrooming Costs Have Severe Consequences on Price, Availability

• Enormous ALAE component (up to 100% of claim)• HO Frequency/severity up by 1,300% to 1,800+%• TX Mold costs totaled $854 million in 2001

$444 ‘mold tax’ per homeowner in state

• Billions across all states, lines of insurance• Implications for Affordability & Availability• 1% national claim frequency = $18 billion in costs• Homebuilding (single-family & multi-unit) affected• Real estate sales have suffered

Possibilities for Abuse

• Abusive practices by mold remediation servicesUnnecessary work, qualifications, improper removal

• Claim misrepresentation by policyholdersMold excluded; incentive to misrepresent nature of water damage

• Unscrupulous public adjustersEncourage policyholders to allow situation to deteriorate

• Testing servicesOver-testing; Gaming the results

• Sales tacticsUse of fear and misinformation

Impacts on Affordability and Availability

Real Consequences for Homeowners & Housing Markets

Average Expenditures on Homeowners Insurance: FL vs. US

420 418440

455481 488

657650

611

562543

366

$350

$400

$450

$500

$550

$600

$650

$700

1991

1995

1996

1997

1998

1999

Source: NAIC, Insurance Information Institute

Average HO expenditures in Florida have risen relative to the US because of CAT risk—mold will create additional unnecessary stressor

States With Highest HO-3Insurance Premiums

$879

$714 $657$606

$487

$0

$200

$400

$600

$800

$1,000

Expenditures/Rank

Texas Louisiana Florida Hawaii US

Source: Insurance Information Institute from NAIC Data, 1999.

1 2 3 4

FL is 3rd without the mold “stressor”

States with Highest Premium/Income Ratios*

1.72%

1.41%1.32% 1.25% 1.24%

0.86%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

TX LA MS OK FL US

Pre

miu

m a

s %

of

Inco

me

*As a % of the median family of 4’s income, 1998. Source: NAIC, Insurance Information Institute

HO insurance is very affordable, consuming less than 0.9% of the

typical family’s income nationally, but 1.24% in FL and climbing! Can

we afford another price stressor?

Mold-Induced Rate Increases Will Impact Affordability in FL*

1.72%

2.40%2.60%

0.86%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

TX TX--40% Hike TX--50% Hike US

Pre

miu

m a

s %

of

Inco

me

*As a % of the median family of 4’s income. Source: NAIC, Insurance Information Institute

Mold costs could push HO insurance costs to 2.5%+ of the typical

family’s income in TX. What will happen in FL?

Mold-Induced Rate Increases Will Impact Affordability in FL*

1.36%

1.82% 1.83% 1.88% 1.86% 1.83%

0.86%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1991 1995 1996 1997 1998 1999 US

Pre

miu

m a

s %

of

Inco

me

*As a % of the median family of 4’s income. Source: NAIC, Insurance Information Institute

Mold costs could push HO insurance costs to 2.5+% of the typical

family’s income in FL

Consumers Can’t Afford Mold, Neither Can Insurers

P/C Net Income After Taxes1993-2001 ($ Millions)

$19,316

$10,870

$20,598

$24,404

$36,819

$30,773

$21,865$20,223

-$7,921-$10,000

-$5,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

1993 1994 1995 1996 1997 1998 1999 2000 2001

Sources: A.M. Best, ISO, Insurance Information Institute.

2001 was the first year ever with a full year net loss, mold was a factor.

-$2.2-$2.8

-$4.0

-$2.9

-$5.4

-$0.3

-$2.6 -$2.4

-$3.6

-$8.9

-$6.5

-$11.5($12.0)

($10.0)

($8.0)

($6.0)

($4.0)

($2.0)

$0.019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

E

2002

F

Underwriting Loss in HO Insurance, 1991-2002F

Source: Insurance Information Institute. A.M. Best

$ B

illi

ons

Underwriting losses in homeowners insurance from 2000 to 2002 alone are

estimated at $19.0 billion, 14.5% above the $20.3 billion in 9/11 property losses. Mold

was not the only factor in these losses.

HO Insurance Costs & Cost of Home Repairs

2.2%

5.3%

1.5%

3.4%4.1%

2.4%2.8%

7.0%

8.0%

Overall CPI Home Repairs HO Insurance*

199920002001

Source: US Department of Commerce, Insurance Information Institute

*HO insurance cost increase for 2001 is III estimate.

Economic Repercussions

New Private Housing Starts(Millions of Units)

1.19

1.01

1.20

1.29

1.461.35

1.48 1.47

1.62 1.67 1.591.60 1.61 1.58

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

90 91 92 93 94 95 96 97 98 99 00 01 02* 03*

Source: US Department of Commerce; Insurance Information Institute*Projections from Blue Chip Economic Indicators.

New Private Housing Starts U.S. economy highly dependent on new home construction as

business investment remains weak

States with Most New Homes Built*, 2000

Source: National Association of Homebuilders, Insurance Information Institute

* Single family units

(000)

108.3 104.999.9

59.248.2

TX FL CA NC AZ

New Private Housing Starts States with biggest mold

problems highly dependent on home construction sector

Homebuilding is an Important Part of the Economy in Most States

Jobs

Generated* Wages

Tax/Fee

Revenue**

1,000 Single-Family Homes 2,448 $79.4 Mill $42.5 Mill

1,000 Multi-Family Homes 1,030 $33.5 Mill $17.8 Mill

Source: National Association of Homebuilders, Testimony before the House Subcommittees on Housing and Community Opportunity and Oversight and Investigations, July 18, 2002.

*Construction and related industries.**Federal, state and local.

Number of People Employed in Construction of Single-Family Homes


* Single family units, based on year 2000 construction figures

265,118

256,795

244,555

Texas Florida California

Mold Puts Jobs at Risk

Construction of single-family homes supports about one-

quarter million jobs in states with the biggest mold problems

Billions in Wages Depend on Construction of Single-Family Homes



$8.6

$8.3

$7.9


Mold Puts Wages at Risk

Construction of single-family homes supports $8 billion - $9 billion in wages in construction and related

industries in states with biggest mold problems.

$ Billions

Billions in Tax Revenue Depend on Construction of Single-Family Homes



$4.6

$4.5

$4.2


Mold Puts Tax Revs. at Risk

Construction of single-family homes in states with biggest mold problems supports $4 billion - $5 billion in tax and

fee revenue to local, state and federal government.

$ Billions

Homeownership Rates,1985 to 2001

* Third QuarterSource: U.S. Census Bureau

63.9%63.9% 64.1%64.5%

64.0%

64.7%

65.4%65.7%

66.3%66.8%

67.2%

68.1%

1985 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*

Public Policy Question: Should mold claims filed by a tiny minority be

allowed to dash the homeownership dreams of millions of low/moderate

income Americans?

Options & Solutions

Options are Limited, Time is Running Out

1. Include coverage and price it into policies2. Add sub-limits; endorsements could increase

coverage (majority of mold claims may then be valued at sub-limit, increasing costs to consumers if sub-limits are too high)

3. Exclude all coverage in standard policy, offer only as endorsement

4. Tighten contract/underwriting (make “sudden & accidental” more explicit; prior water damage claims; Note: not a FL option - unique litigation environment)

5. Absolute mold exclusion6. Price controls7. Federal Mold Pool (oh, the irony!)8. Walk away from business (can’t offer product at loss)

ISO Mold Exclusions

ME

NH

MA

CT

PA

WVVA

NC

LA

TX

OK

NE

ND

MN

MI

IL

IA

ID

WA

OR

AZ

HI

NJ

RI

MDDE

AL

VT

NY

DC

SC

GA

TN

AL

FL

MS

ARNM

KYMOKS

SDWI

IN

OH

MT

CA

NV

UT

WY

CO

Exclusion Approved

No Approved Exclusion

Homeowners policy mold exclusions approved by insurance departments in more than 30 states + DC*

*As of July 29, 2002.

Source: Insurance Services Office

MS

mold and insurance: truth and consequences august 2002 robert p. hartwig, ph.d., senior vice...

Documents

great pyramid of mold

word mold

mold didnt

mold claims

presence of mold

economics of mold

mold remediatorsprofiteering

mold contamination