Canadian Underwriter

Re-introducing mold insurance may aid real estate industry (November 09, 2005)

November 9, 2005   by Canadian Underwriter

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A recent poll meant to assess mold’s financial impact on the real estate market indicates that 60% of builders and real estate lenders are hearing that fear of mold problems existing on a property is the reason individuals are backing out of real estate transactions.
The poll, conducted by consulting firm Environmental Assurance Group (EAG), shows that 76% of executives are concerned about mold liability on properties they have invested in.
Respondents who have experienced a mold-related incident in a real estate transaction say it would have cost over $300,000 to fix the problem.
Developers, architects, construction executives and mortgage lenders are taking precautions to protect themselves because of the mold exclusions recently written by the insurance industry on property and business policies.
“Our latest survey shows that mold fear is growing exponentially among the major stakeholders in the real estate business in a post-insurance world,” Charles Perry, principal of EAG, says. “It’s clear that without the emergence of a new risk mitigation method, doing a real estate deal nowadays is just a roll of the dice Mold is now excluded across the country (US) on property-casualty coverage, business risk insurance, and Directors & Officers policies.”
When asked if they believe mold can revalue a real estate transaction, 99% of respondents say yes while 60% of builders and lenders say they were aware of a real estate deal where a mold problem negatively affected the transaction.
“It’s been three years since most insurers cut the cord on traditional mold coverage, yet the building and lending industries cannot seem to find a consensus on dealing with mold risk mitigation,” Perry says. “Unfortunately, mold cannot be simply scraped away like asbestos or lead paint. As more stakeholders acknowledge the scientific fact of mold’s resilience, we will see a groundswell begin to form for a new mold prevention protocol, which focuses on removing the possibility of mold entering a structure.”
The poll shows that 96% favor a new mold prevention program for new construction. Such programs include a new construction protocol, the use of mold-resistant building materials and inspection regimes with sign-offs and/or certifications.
Most builders and lenders (48%) say they are aware of new construction projects where mold-resistant building products have been used.
When asked what would influence their decision to approve a mold prevention protocol, 59% say a preferred mortgage rate.
Having mold re-included in their insurance coverage (49%), getting a positive impact on resale ability and price (47%), and seeing a reduction in insurance premium (39%) also rated highly as influential factors for supporting a mold prevention protocol.