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Who's watching the house?

Remember the "permanent record" teachers warned you about in high school? Your insurance company might have one on your home.

And a few bad marks could put your insurance rates -- and even your ability to get insurance -- at risk.

In the last two years, 2.5 million households were informed by insurance companies that their policies would not be renewed, according to a study by the Independent Insurance Agents andBrokers of America.

Insurance companies have always kept records of claims filed by their homeowners. But now, with the help of several specialty companies, the information is being pumped into databases and shared across company lines, much like credit reports.

Here's how it works: When you file a claim with your insurance company, the company forwards all the pertinent information to another company (ChoicePoint Services and Insurance Services Office Inc. are the two main ones), which puts the details into its database. In return for the insurance company's cooperation, it gets access to the information in the database.

With CLUE (for Comprehensive Loss Underwriting Exchange) or A-PLUS (Automobile-Property Loss Underwriting Service) reports -- the reports generated depend on which company compiles them -- insurance companies can check out the history of an individual or an address.

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Claims stay in the database for five years, according to representatives with both companies. "We can actually keep them on for seven years, but the industry isn't requesting that," says Richard Collier, vice president of sales and marketing for ChoicePoint, which produces the CLUE reports.

So how many insurance companies are participating in claims sharing databases? "Well over 90 percent," says Bill Feldhaus, associate professor of risk management and insurance at Georgia State University.

"It's becoming very, very common," says Robin Olson, senior research analyst for the International Risk Management Institute, an insurance and risk management research and publishing company.

When you buy a house, chances are your potential insurer will run both you and your potential home through the database. If either is linked to too many claims, you could face higher rates, if you can get insurance at all.

"More and more insurers are using it," says Olson. "But there have been problems. And consumers' groups have complained there are abuses."

Many in the insurance industry see it as a good tool both for more accurately assessing a person or property as a risk and to verify that an applicant's information is correct.

"It's a way of assuring the price is closely related to the risk you're dealing with," says Feldhaus.

Jeanne M. Salvatore, vice president of consumer affairs with the Insurance Information Institute, agrees. "The reality is it's a very good tool because the consumer will be getting the same information the insurance company is getting," she says.

But there may be a glitch. "There appears to be a problem, where if somebody files a claim [even though] there is little, if any, actual payment on the claim -- it [can get] reported as claim activity," says Feldhaus.

"It may be to your detriment because it may be recorded as a claim event and be misunderstood later on," he says.

The National Association of Realtors has also noticed differences in the way insurance companies handle -- and record -- the same situation, says Marcia Salkin, NAR senior policy representative for governmental affairs.

The databases "are all well and good as long as the information contained in the database is correct and there is consistency among reporters to what gets included," she says. Instead, "a call by a consumer to insurance company A can be handled much differently than to insurance company B.

"In addition, we had concerns about an individual [making a call but] no claim against the insurance policy, but that inquiry shows up on a database as a claim," says Salkin.

So-called "zero payout claims" -- incidents that are reported but not paid, either because the homeowners decide to pay it themselves or because the claim is denied or doesn't exceed the deductible -- go into the database, much to the chagrin of homeowners and real estate agents.

But Collier believes the rules are pretty simple. "If you call and ask your [insurance] agent to make a repair, you're making a claim," he says.

Realtors are concerned about the number of houses and homeowners who are facing non-renewal, says Salkin. "It's really a reflection of the hard insurance market. And [claims reports are] a component of that."

But Salvatore claims databases are only one small part of the underwriting process. The crux of the issue is that it's a tough insurance market and the rules of the game have changed.

"Insurance companies are being more precise in their underwriting," she says. "It's very important right now that they do match the price with the risk."

Buying and selling a home
Statistically, an individual files a homeowners insurance claim once every eight to 10 years, says Salvatore.

But the threshold for what's acceptable before a company raises the rates or sends out a non-renewal varies from company to company. Many times, homeowners don't even know they have a problem until they try to sell their homes.

"It definitely has become a major factor in real estate transactions," says Salkin. "Most experienced agents will insist that the buyer apply for insurance immediately upon making an offer."

At John L. Scott Real Estate Inc., headquartered in Bellvue, Wash., buyers and sellers sign an agreement that stipulates an offer is contingent on the buyer being able to get insurance on the home.

Sales associate Cheryl Ferrier takes the process a step further, inserting the phrase "offer conditioned on buyer obtaining insurance at a rate acceptable to the buyer."

Her worry: A buyer might be able to get insurance, but at so high a rate that the home would be "too expensive."

Salvatore advises buyers to use the reports as a tool to further evaluate the property. If that wonderful home shows four small fires, is there an undisclosed electrical problem?
Or does the current owner smoke in bed?

Mistake on your report?
It will help you to know what's on your report, especially if you're going to be buying or selling a house. Reading the report "on an annual basis would be a good idea, just to make sure there aren't any inaccuracies," says Olson.

If you find a mistake, you have the right to dispute it. By law, the database company has 30 days to investigate, says Collier.

If the insurance company doesn't reaffirm its information, the claim is removed. But if the reporting insurance company stands by the information, it will stay on the report, he says.

"If a contributor says it stays, I can't remove it," Collier says.

While you can attach a note explaining your side, it's not really clear if that will make any difference.

If you do believe there was an error, says Feldhaus, "recourse would be against the insurance company that made that report to clarify what that was."

In addition, some states have rules about what types of claims or incidents can be counted against a homeowner when it comes to writing a policy or hiking the rates. You can also contact your state insurance office, or even search their Web site, to find out the rules in your state.

If erroneous information costs you money -- the refinance loan you didn't get or the house you couldn't sell -- you may well have a claim against the insurance company that put it on your report, says Feldhaus.

The bad news: While you might not agree with a notation, it might not be an out-and-out mistake. "It's a database of reported losses," says Collier. Whether a claim is paid or not, the property has suffered a loss and the report will show that, he says.

A clean bill of health
So how do you keep your claims report clean? Don't file claims.

Seriously, it may seem silly to pay for insurance and never use it. And that's true if you're paying a mint for a $250 or $500 deductible. So hike it to a high deductible that you can live with -- $1,000 or $2,000 -- and use it only for high dollar amounts you can't cover.

If you get one or two strikes with your insurance company, do you want a few leaky toilets covered or the disaster that takes out your entire house?

"People have to be aware of the fact that making claims has an impact on the ability to get insurance and may have an impact on the rate they're charged," says Salkin. You can make a claim when you have "a $250 deductible and a $500 incident. But is it in your best interests?"

A savvy consumer move would be to open an emergency bank account with the amount of your deductible -- or more -- to cover those little home mishaps. And you can start it off by banking the money you save by going to a higher deductible.

Dana Dratch is a freelance writer based in Atlanta.

-- Posted: Sept. 23, 2003

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