Insurance companies are looking hard and talking tough about what might go wrong at your house.
LIVERMORE FALLS – Ann and Darren Gile knew their house needed some work, but they didn’t know their insurance company could make them fix it.
Fix it or lose their insurance.
Losing their insurance would mean forfeiting their mortgage and losing their home. The couple estimated the cost of repairs to be at least $15,000.
It was August. They had just finished paying off Ann’s cancer bills and Darren was out of work at the time, his unemployment benefits nearing an end. They were frantic.
The insurance company gave them a deadline of Jan. 5. If the repairs weren’t done, their insurance would not be renewed.
New scrutiny
The notice to repair or be canceled reflects a new, national emphasis on prevention. Companies are out to limit their risks. For some insurers, the concerns extend from the treehouse in the backyard to the breed of the family dog.
For the Giles, it was more basic: They were told to repair decks, porches, windows, stairs and chimney, and fix peeling paint.
The Giles were also told by the state that they could appeal if their policy were canceled.
Many Maine homeowners are doing just that. The number of hearing requests in 2002 more than doubled from the previous year, from 153 in 2001 to 349 last year.
Over the last three years, state arbitrators have sided with homeowners in more than two cases out of three.
But the Giles’ insurance company was within its rights to require the repairs, said state insurance Superintendent Alessandro Iuppa.
According to state law, the reason for nonrenewal of property insurance shall “be a good faith reason rationally related to the insurability of the property.”
In his annual report this year, Iuppa told the state Legislature that the homeowners’ insurance market changed in 2002, both in Maine and nationally, with increasing rates and more selectivity in accepting new policies and renewing old ones.
The reasons: increased claims, increased costs and declining investment income.
“The insurance industry does not make money on insurance, they make money on investments,” said attorney Jason Adkins, an insurance watchdog with Adkins, Kelston & Zavez, a Boston law firm.
Insurance companies use premiums to make investments, which they use to make more money, Adkins said. Right now there are “very low interest rates” and insurance companies are making less money.
Companies are turning to the business of insurance and cracking down on policyholders, which has led to more nonrenewals, Adkins said.
“I think they’re too aggressive,” he said.
‘What ifs’
Companies have always looked at properties they insure for potential hazards, but increasing costs have made them even more cautious, said Alejandro Soto, spokeswoman for the Insurance Information Institute.
When you’re paying for a homeowners’ insurance policy, you’re paying for all the “what ifs,” Soto said.
Potential lawsuits are also factored into insurance costs.
People “are not necessarily paying for what they have but what could happen to what they have,” Soto said.
The Giles said their insurance company told them that the required repairs were safety-related.
Rather than waiting for a cancellation notice, the Giles secured a low-interest loan of about $24,000 through Community Concepts Inc. for home improvements, which includes $10,000 that doesn’t have to be repaid in connection with removing lead paint inside the house, Ann Gile said.
Contractors will start after Christmas. Some work already has been done.
The couple felt forced to pick up the loan, Ann Gile said. That’s the part that bothered them, as well as the short notice.
“It just wasn’t the right time for us.”
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