Many insurance companies, stung by a high number of claims and a sagging economy, have tightened their belts, pinching their customers seeking homeowners insurance in the process.
"Insurance companies are a lot more cautious now," said Jennifer Jones, who handles government relations for the Virginia Association of Realtors. Jones also is part of a work group of Realtors, insurance agents and others that is tackling the issue.
Potential homeowners, she said, "will go to buy a home, and they'll find out the home had very small water damage and the insurance company will refuse to write a policy."
"This is not specific to Virginia," she said, although she added "we heard of a lot of cases in Northern Virginia."
ESTHER PRYOR, the newly appointed chairman of the board of the Northern Virginia Association of Realtors, said that insurance companies have started looking at credit reports and past claims by potential homebuyers as well as past claims on the property when deciding whether to issue a policy.
"If the numbers don't come out exactly right, they are denied homeowner's insurance," she said.
And that's a problem, she added: "If you don't have homeowner's insurance, you don't get a mortgage."
At the same time, those homebuyers who are able to get homeowner's insurance have to pay more for it. All but one of the 10 top insurance providers in Virginia have implemented double-digit rate increases. Some, such as Allstate, have raised rates by nearly 26 percent, according to the State Corporation Commission.
Pryor recalled a recent case where a real estate agent tried to help a client find insurance.
"The agents and the potential homeowner got on the phone and they kind of went down the phone book looking for an insurance company that would insure at a reasonable rate."
Pryor said Realtors are particularly concerned about the growing practice nationwide of using credit scores to determine whether to sell insurance.
"The first case I saw was about a year ago," said Pryor. "Nobody paid much attention to it. It was an anomaly. But all of a sudden, you go to meetings and you start talking to people, and all of a sudden it's not an anomaly anymore. It's almost a fact."
But Joe McCormick, the corporate relations manager for Allstate Insurance in Fairfax, defended the practice.
"The credit scoring is a very powerful predictor of future losses," he said. "The worst credit rating is almost twice as likely to have a claim than the best. It's hard to ignore that kind of difference.
"It's been a topic of debate, and I can't really offer you a definite reason for that," he added. "It might be a matter of folks who manage their money better tend to manage their whole lives better."
McCormick said the rate increases and the insurance industry's new selectivity were due to uncharacteristic weather patterns, which have brought hail storms and tornadoes to the area; to the red-hot housing market, which allows contractors to raise their prices, pushing up the cost of insurance; as well as to the economic downturn, which has reduced insurance companies' returns on their investments.
"Investments are the primary way that insurance companies earn a return," he said. "We have low-risk sorts of investments, but pretty much anything across the board has been losing in the past couple of years."
For that reason, he added, some companies have gone as far as putting a virtual moratorium on selling insurance in certain hard-hit states.
TO DEAL WITH the problem, several legislators have introduced bills in this General Assembly session. Del. James H. Dillard II (R-41st), for instance, has proposed legislation that would prohibit insurers from refusing to renew a policy because of claims stemming from nonnatural causes. Del. Thelma Drake (R-87th) is the patron of a bill that would prohibit companies from refusing to sell homeowner's insurance based on claims from the previous owner of the property. And state Sen. Phillip Puckett (D-38th) has proposed that insurers be forbidden to refuse a policy based on credit information.
McCormick said the Virginia insurance industry is "trying to work with the legislators to get a bill that we can all agree on that will enable us to keep this advantage of credit scoring and yet that will have these consumer safeguards in place."