AAI Discourages Md. Mold Coverage Mandate

November 8, 2002

The Alliance of American Insurers (AAI) pressed the Maryland Insurance Administration not to establish coverage mandate, arguing that such a mandate would destabilize the state’s homeowners insurance market.

“Any appropriate solution to the mold issue must address availability, affordability and choice, otherwise the Maryland consumer will be the ultimate loser,” said Neil Malady, Alliance Mid-Atlantic regional manager speaking at an informational hearing.

“Extensive coverage for mold was never contemplated in insurance underwriting and pricing until recently,” explained Kirk Hansen, Alliance director of claims. “And mandating its coverage will only create financial instability for insurers and availability and affordability problems for consumers. By allowing insurers to offer a variety of coverages at a range of prices, consumers would be allowed to choose the coverage they need at a price they can afford.”

Hansen noted that wherever mold coverage has been mandated, it has resulted in higher claims costs that have led to higher insurance premiums. “Texas’ experience should serve as an excellent example as to why Maryland shouldn’t mandate coverage for mold,” he said. “Because Texas in the past mandated use of a homeowners policy that did not require water discharge to be sudden and accidental, as required by standard policies in most other states, it has the dubious honor of having the highest homeowners premiums in the nation.”

On top of that, he noted that the Insurance Department estimated Texas consumers would face double-digit rate increases for the next several years if insurers weren’t allowed to limit coverage. “The department now has begun approving national homeowners forms, thus giving insurers more freedom to underwrite and customers more product choices,” Hansen said.

He added that a majority of states have seen the wisdom of this approach, with insurance departments in 36 states and the District of Columbia having approved homeowners exclusions for mold. “The insurance industry functions best when free-market forces are allowed to operate,” he said. “Consumers are best served when the free market is allowed to decide what coverages should be offered and for what price.”

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