Get a CLUE
January 24, 2003
Insurers score claims in stone, homes and owners tote the weight
By Susan Romero
Inman News Freatures
Homeowners insurance: use it and lose it. The same caveat applies to homeowners who merely discuss with their carrier the possibility of filing a claim.
Underwriters check a policy applicant's claims history through the Comprehensive Loss Underwriting Exchange, known as CLUE. They're looking for claims filed by a homeowner or home buyer and on the property itself. In today's hardening insurance market, a claims history on either could be trouble for insurance applicants.
Approximately 90 percent of homeowners insurance companies utilize the CLUE database, which contains 41 million claims, according to ChoicePoint VP of sales and marketing property Richard Collier. In some states consumer-reported incidents that don't result in a paid claim are also kept in CLUE. Claims older than five years are removed and stored in an archive.
ChoicePoint originally developed CLUE to help insurers track auto insurance fraud in the 1980s and in 1992 a homeowners' version was developed. Today insurers also use CLUE as an underwriting tool. The reports contain claims information, individuals' identifying information, including previous addresses, birth dates and Social Security numbers, and lists companies that have accessed one's claims history report within the past two years.
Some are concerned that the nation's housing stock is at risk for developing a collection of potentially uninsurable and therefore un-sellable homes because increasingly insurers are refusing to write coverage for homes, especially those with previous water damage.
"The hardening market is causing carriers to make more stringent underwriting rules than they did in years past (when) a small water damage claim didn't scare the heck out of them for the fear of mold," said Collier.
Consumer groups say underwriters who formulate insurance scores by counting past claims may deny applicants the coverage they need to close a home sales transaction or to raise existing policyholders' premium rates. And in some cases to drop longstanding policyholders who've filed as few as one claim. The result can stigmatize homeowners, home buyers and their properties as uninsurable via normal underwriting standards.
One California first-time home buyer was denied homeowners insurance after a CLUE report revealed that his brother had filed a water damage claim. The home buyer had lived with his brother while saving for his home purchase and had listed his brother's address as his last -- that is how the insurance underwriter connected the claim to him.
Theoretically underwriters who don't make the effort to consider the merits of each claim could refuse to provide insurance for just about anyone who's previous address turns up in CLUE and this concerns Nanci Kramer, spokesperson for the California Department of Insurance.
"It could happen to anyone," she said.
Kramer has seen a fourfold increase in consumer complaints who've contacted the department with stories about being dropped by their carriers or denied coverage altogether. In last quarter of 2002 the department fielded 1,283 written consumer complaints compared with the 326 filed in all of 2001.
"It used to be that underwriting was done on a personal basis - you literally looked at the potential risk of that individual. Our concern is that underwriting is becoming mechanized and not considering the individual specifics of consumers' situations," said Kramer.
Insurers disagree and say claims history, credit scoring and other proprietary underwriting risk models have helped the industry objectively arrive at an equally objective insurance score, which determines policy applicants' risk potential.
"Insurers are looking carefully at (CLUE) reports because a basic premise in insurance is that a prior loss is indicative of the likelihood of a future loss," said Eric Goldberg, assistant general counsel for the American Insurance Association, a property and casualty insurance trade organization that represents more than 410 insurers.
But Kramer said there is nothing objective about the CLUE database.
"The insurance companies are creating this database so it's based on what they say. They decide what a claim is, they decide how to define it and they decide what's going to be entered about you," said Kramer.
An even bigger issue with CLUE reports is that consumers by and large don't know the reports exist, said Kramer.
ChoicePoint and its state analogues are considered to be a consumer reporting agency under the Federal Fair Credit Reporting Act. If an insurance applicant is denied coverage because of information contained in a CLUE report, ChoicePoint is required to disclose the finding to the applicant and offer the consumer a free copy of the report. Consumers may purchase a copy of their CLUE report for $12.95 at ChoiceTrust and like a credit report, they may add a 100-word addendum to a claim.
"The glaring difference between a credit report and a CLUE report is that most of us as consumers know that our credit history is tracked and followed (and) virtually no consumer knows that their insurance activity is tracked and reported. They don't know it follows them (and) they don't know that it can affect their ability to sell their house," she said.
Collier said that 65 percent of CLUE searches return a clean report and that a for-sale home with a claims history isn't necessarily a deal killer, the report could verify to a home buyer that previous damage was fixed properly.
"In some cases you can turn vinegar into sugar," he said.
Copyright: Inman News Service