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| The Basics | Insurers keep a secret history of your home
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A huge database
not only tracks claims, it also looks for risks such as toxic mold.
That's why homeowners with even minor water damage are being canceled
-- and are sometimes unable to sell.
By Liz Pulliam Weston
You probably know that it’s not a good idea to make too many claims on
your homeowners insurance policy because your insurer could drop you.
What
you might not know is that making a claim could make selling your home
more difficult down the road. What’s more, you could find your home’s
value damaged or a sale jeopardized even if a previous owner, and not
you, made a claim.
Insurers increasingly are using a huge
industry database, called the Comprehensive Loss Underwriting Exchange
or CLUE, to drop or deny coverage based on a home’s history of claims
or damage reports.
Insurance companies are terrified of rising
losses from water and mold damage. So a single report of water-related
problems may be enough for insurers to shun your home.
Jan and
Kevin Garder of Bremerton, Wash., discovered this the hard way. The
Garders thought they were doing the right thing when they told their
insurance company, State Farm, about some minor water damage caused by
a rainstorm last year.
Consumers held hostage
The
couple, who say they had been with their insurer for 30 years without
filing a claim, ultimately decided not to file one this time, either.
That
didn’t stop State Farm from dropping them as customers, they say. Not
only that, but they say State Farm also shared the damage information
with the CLUE database. When the Garders applied for coverage
elsewhere, the other insurers cited State Farm’s damage report as the
reason they wouldn’t write a policy, Jan Garder said.
“Until then, we didn’t know anything about the CLUE database,” she said. “We really didn’t have a clue.”
State
Farm declined to comment on the Garders’ case, citing privacy concerns.
Spokeswoman Lisa Wang said the insurer shares only claims information
with CLUE, not damage reports.
But the company that operates
CLUE, ChoicePoint of Alpharetta, Ga., said that the database collects
damage reports as well as claims. The information stays in the database
for up to five years, said James Lee, ChoicePoint’s chief marketing
officer.
The Garders say they finally secured bare-bones fire
coverage for about $1,000 a year, more than three times what they paid
previously for full homeowners coverage.
What’s more, the
problem is derailing their plans to sell their home. The Garders say
they have been told by their real estate agent and others that they may
have a tough time getting a good price for a home that’s already been
rejected by many insurers.
“You are totally blackballed,” said Jan Garder, 49. “They should not be able to hold a consumer hostage like this.”
Insurance companies get aggressive
In
previous years, insurers used the CLUE database in large part to watch
for fraud and for consumers who had a history of filing numerous claims.
After
losing nearly $9 billion on homeowners insurance last year, however,
insurance companies have become more aggressive about screening for
other risks -- including damaged homes that could spawn future claims.
State
Farm, which lost $5 billion last year on its various insurance lines,
has been among the most aggressive in weeding out unwanted risks. The
nation’s largest property insurer has dropped thousands of
policyholders from coast to coast and stopped writing homeowners
insurance in several states.
So far, insurers’ increased use of
the CLUE database has not caused serious problems for the booming real
estate industry, said George Tribble, a member of the National
Association of Mortgage Brokers’ board of directors.
But Tribble
said he has heard a number of anecdotal reports of residential sales
falling through at the last minute because of CLUE-related problems in
securing insurance. He fears the problem could get worse if insurers
begin to shy away from homes that have had even minor damage.
“Right
now, it’s still a pretty isolated problem,” Tribble said, “but that
could change if they (insurers) continue to do this. … If you’re not
able to get insurance, you’re not able to close the deal.”
Tribble
thinks it’s particularly unfair that a home could be blackballed
because of one claim, let alone a single report of damage that didn’t
lead to a claim.
“Insurance companies want to keep their costs
down, which is understandable,” Tribble said, “but this is what you
have insurance for -- to cover you for accidents.”
The insurance
industry is notorious for its manic-depressive cycles. In profitable
years, companies will slash premiums, boost coverage and take on big
risks in hopes of gaining market share. When those risks start costing
real money, the companies sound the full retreat -- hiking premiums,
dropping customers and shunning risk.
What’s notable about their
most recent mood swing was how quickly it happened, spurred in large
part by last year’s losses and the massive increase in mold-related
claims, especially in Texas and California.
How to protect yourself
While
you can’t do much about insurers’ overreactions, you can do something
to protect yourself in this particularly difficult time. Among them:
- Keep your home in good repair. A
solid, watertight roof, good plumbing and a decent paint job can
protect your home from various water disasters -- the kind of damage
that’s scaring insurers the most these days. It’s a good idea to
regularly check the hoses on your clothes- and dish-washing machines,
since cracked or burst hoses often lead to serious water damage.
- Keep your deductible high.
Pay for smaller expenses out of your own pocket. Homeowners insurance
should be reserved for the big disasters, not the little problems you
can easily pay for yourself.
- Think twice about water-related claims.
This is especially true if you plan to sell within a few years. You
could be better off paying to repair the problem yourself rather having
your home be branded as high risk.
- Don’t tell your insurer about problems unless you’re sure you’ll file a claim.
This last piece of advice is unfortunate, because insurers and
insurance agents can be a decent source of counsel on whether it’s
worth filing a claim. Since any damage you report could get passed on
to the CLUE database, however, it’s smart now to err on the side of
caution.
- Consider getting a copy of your CLUE report.
If you’ve been denied insurance, you can get a copy of your home’s CLUE
report for free; otherwise, you’ll pay about $8. You have a right under
federal law to dispute any erroneous information on the report. To get
a copy, contact ChoicePoint (see link at left under Related Sites).
Currently, you’ll need to mail in your request, although the company
hopes to have an online version by the end of the month.
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