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Ugly home insurance development

By Jay MacDonald ·
Tuesday, March 12, 2013
Posted: 6 am ET

If a stealthy new option on the revised standard homeowners insurance form catches on, it may soon cost you more to maintain your home's appearance.

As Insurance Journal reported last week, a revised homeowners insurance form was filed in most states in February by the American Association of Insurance Services, or AAIS, one of two organizations that design standardized forms and policies for the property and casualty, or P&C, industry.

The revised form includes a new "cosmetic damage exclusion" option that would excuse your home insurer from paying to repair cosmetic wind and hail damage to your roof, walls, doors and windows. The form also allows insurers to limit the exclusion to a single part of the dwelling, such as the roof.

Policies containing the exclusion would still pay to repair functional physical damage to the insured home, i.e., its ability to keep the weather outside.

The other P&C standards organization, ISO, also wrote a cosmetic damage exclusion into its recently revised standard commercial insurance form and is considering adding it to its new homeowners insurance form as well.

AAIS spokesman Joseph Harrington says the 330 insurance companies that use AAIS forms requested the change as a tool to help manage a recent increase in cosmetic damage claims. While some insurers may choose to apply the exclusion on a policy-by-policy basis, Harrington expects most will either apply it across the board or not use it at all.

On the surface (so to speak), the cosmetic damage exclusion seems like an ill-timed nickel-and-diming by home insurers whose pleas for rate increases have lately fallen on deaf ears at state insurance departments.

Why, a homeowner might well wonder, should I submit to a sketchy bit of hair-splitting that gives my insurance company discretion on what constitutes cosmetic damage, especially in traditionally hard-hit geographic areas like the Midwest, where this shell game is likely to be popular? And how might this potential blight affect our already-struggling property values?

Many home insurers no doubt hope that this option will become the new norm. But once homeowners get wind of it, there's a fair chance it may backfire and simply drive business to the agencies that refuse to use it.

Would you buy a policy from an insurer who couldn't care less what your home looks like?

Follow me on Twitter: @omnisaurus

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March 13, 2013 at 10:57 am

No doubt they will shortly do what they so often do after adding a new exclusion - offer to sell a new product, "cosmetic insurance" or a "cosmetic rider", to "buy back" the newly excluded risk - but of course only at the expense of a new or increased premium for that newly optional coverage far above whatever portion of our existing premiums they had been using to calculate the risk for the type of loss they will now be exclusing from the new standard form (and for which new exclusion there will of course be no reduction in premium - for that they will instead use their usual line, something like, "this exclusion allows us to keep from increasing our premiums as much as we otherwise would have had to increase them...")

March 13, 2013 at 10:43 am

I would refuse to sign off on this exclusion. This is nothing short of "pure greed and evil."

Average Joe
March 13, 2013 at 10:35 am

The bottom line is, well, the bottom line. Insurance companies primary focus is profit. Despite their claims to the contrary, just look at the profit they post annually. When was the last time you saw any insurance co. post a loss for the year? (not including mom and pop operations) As long as the insurance industry owns congress, you will continue to be gouged by them.

March 13, 2013 at 10:00 am

How do they figure that a window broken by hail is 'cosmetic'? It's a necessity!! Not a luxury!!

March 13, 2013 at 9:58 am

It is unfortunate that most people do not understand how insurance works and look at insurance companies as "scumbags" (comment above) when the want to limit coverage or increase rates. Having worked as an agent for years and seeing what actually goes on, insurance companies are very fair and reasonable. They have to make a profit to justify staying in business like any other business! Unless we relegate all insurance to the likes of the National Flood Program where the tax payer is in fact subsidizing the rates! Don't get me wrong I don't like paying higher rates than anyone else does. But companies can't payout more in claims than they take in, this isn't the Federal Government.

Mary V
March 13, 2013 at 9:42 am

I would think Mortgage Companies would step up to the plate and create a list of Insurance Companies that adopt this "cosmetic" coverage and refuse to allow any company on the list to insure their secured properties. After all, the mortgage company is lending money for the property based on the value; value includes the cosmetic appearance.

Jim T.
March 13, 2013 at 9:27 am

I have been a storm (catastrophe) adjuster for 10 years and have traveled most of our country east of the Mississippi working hurricanes, tornadoes, hail storms, floods, fires, etc. In the 10 years of work, I have handled excess of 7000 claims for companies including Travelers, USA, Hartford, Hanover, Armed Forces, and many others. Property and Casualty Insurance is a very competitive business and is heavily regulated. Their rates are controlled by the state insurance departments. The Insurance Commissioner is either appointed or elected and represents the interest of the people.

In all the years of handling insurance claims, I can only think of a few in which the insurance company asked me to reduce the amount payable to the policyholder. Most of the companies asked me to allow more for damages.

Cosmetic damages are a problem. However, if cosmetic damages are allowed in every case, imagine what your premium will be. Replace the entire roof when only a few shingles are blown off? Paint the entire interior of the house when only one room is damaged? Sounds good but somebody has to pay for these repairs and replacements. Jim Steele mentioned Travelers in a previous post. Having worked claims for Travelers, I can truthfully say that if you had a problem with Travelers, it needs to be brought before their management. They are very fair in their claims practice. Why not appeal to the district manager?

March 13, 2013 at 9:22 am

Not fair - I am on a fixed income, paying outrageous insurance costs already, home value keeps going down, but not costs...just I have to keep reducing replacement costs and raising deductibles..just to have some coverage in case of an emergency..

March 13, 2013 at 9:02 am

These insurance companies are the biggest scumbags! They never make enough money. They get away with fraud on a daily basis that no one else can get away with. The have customers pay them for a service. The insurance company is not forced to serve their customers that make them rich.

March 13, 2013 at 8:51 am

David F Moberg, You MUST work for the Insurance Company! I agree with most of the comments that It is a way to reduce their liability of coverage and not reducing the premiums. We will be paying more for less!