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.
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.
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.
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
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
"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
"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,"
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
"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,"
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,"
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
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
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
"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