"CLUE
and other property claims databases enable insurers to check
the claim history of both the homeowner and the property which
the homeowner is purchasing"
How
Will the C.L.U.E. (Comprehensive Loss
Underwriting Exchange) Affect You?
The
goal of every insurance company is to set
rates for insurance policies as closely as
possible to the actual cost of claims. If they
set rates too high they will lose market share
to competitors who have more accurately
matched rates to expected costs and if they
set rates too low they will lose money. This
continuous search for accuracy is good for
consumers as well as insurance companies. The
majority of consumers benefit because they are
not subsidizing people who are worse insurance
risks — people who are more likely to file
claims than they are.
A new tool linked to advances in information
technology enables insurers to better assess
the risk of future claims. The CLUE
(Comprehensive Loss Underwriting Exchange) and
other claims databases provide claim history
information.
CLUE and other property claims databases
enable insurers to check the claim history of
both the homeowner and the property which the
homeowner is purchasing. This helps
underwriters determine the risk of loss.
Homeowners in the housing market also benefit
from the fact that the claims record is
available to buyers.
CLUE
and Other Property Claims Databases
CLUE (Comprehensive Loss Underwriting
Exchange) is administered by ChoicePoint, a
data management company and some 600
homeowners insurers contribute claims data to
it. CLUE Property was created in 1992. There
is also a CLUE Auto database which was started
in 1987. The Insurance Services Office, an
insurance industry organization, runs A-PLUS
(Automated Property Loss Underwriting System)
to which about 1,250 companies contribute.
Insurers that contribute loss data can
withdraw information from the exchange.
Insurers have been using loss histories as a
primary underwriting and rating factor for
homeowners insurance for decades. Before the
advent of computerized databases, they
searched local records and asked for claims
information from the applicant for insurance
and his or her current insurer, a time
consuming activity which often resulted in
incomplete information. They also requested
information on the condition of the home that
was being purchased. With computerization, the
information seeking process produces a report
almost instantaneously and the information is
more reliable, saving both time and money.
About CLUE: Insurers need two kinds of
claims information: on the home the applicant
for insurance is vacating, because that may
show how responsible the person is as a
homeowner, and on the new home because that
may show that the home has a history of such
recurring problems as water leaks or theft.
The only thing new about CLUE and A-PLUS is
that the information is computerized. This
makes some people feel uncomfortable. Some may
feel that insurers have too much information
about them or that the information insurers
have could be inaccurate.
Federal regulations allow insurers to
contribute to this kind of database for
underwriting purposes. Only loss history
information is stored in the databases. For
example, an A-PLUS report includes the
following:
the policyholder’s name and/or property;
the type of insurance coverage;
the name of the insurer and the policy number;
the type of loss, including cause, date and
amount;
the status of the claim and how much has been
paid which may be less than the loss amount
because of the deductible;
whether the loss resulted from some major
disaster such as a hurricane;
whether the property is mortgaged.
CLUE Reports and the Consumer:
Consumers can get a copy of their own CLUE
report for a small fee from ChoicePoint. Since
the average homeowner files a claim only once
in 10 years and the data is only kept for five
years, most people have no CLUE record.
Consumers who suspect errors — disputes over
CLUE reports arise in only three out of every
10,000 cases or three hundredths of 1 percent
— may contact ChoicePoint which must follow
certain procedures. The vast majority of
disputes are resolved within two weeks.
Consumers can also add information to their
report that lowers their risk profile such as
the replacement of a leaky roof or the
installation of dead bolt locks on outside
doors.
CLUE reports are playing an increasingly
important role in real estate transactions.
Many buyers now stipulate that a CLUE report
on the new home must be included with the real
estate contract and some state legislatures
are considering making this a requirement for
any real estate transaction.
Most state insurance laws allow insurers 60
days after issuing a policy to thoroughly
review all the underwriting information,
including CLUE reports and to cancel a policy
if new information comes to light that makes
the risk unacceptable. However, a homeowners
policy must be in place at the real estate
transaction closing and since many home buyers
leave buying a homeowners policy to the last
minute, the insurer may not have checked all
the underwriting material by the time the
closing takes place. Realtors are now
encouraging buyers to start shopping for
coverage early in the real estate transaction
process.
How Insurers Use CLUE Reports: CLUE
reports are almost always used to underwrite
and rate new policies rather than rerate
existing business. At renewal time
underwriters can look to their own databases
to find out about recent claims. Each insurer
decides how to use CLUE reports based on its
own underwriting and rating criteria. In some
companies, a home with two water damage claims
in the last five years or several thefts will
qualify for a standard policy, in others for a
high risk pricing tier. Some insurers will
refuse to insure it altogether.
