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December 10, 2002 -
SAN FRANCISCO, Calif. (BestWire) - Despite a lower number of claims per capita compared with other states, California has a higher percentage of water-damage claims than the national average, according to a company that testified during a hearing last week about homeowners insurance.
A five-hour hearing held by the Senate Insurance Committee looked into why homeowners are having a hard time finding insurance in California if they have a claims history.
The Department of Insurance has been investigating homeowners insurers with concerns they might be using a database called Claims Loss Underwriting Exchange, or CLUE, inappropriately. The database is meant to share fraud-related information among insurers, but regulators suspect it might have been used to create an availability crisis.
Last spring and in the early summer, the department began receiving an increasing number of calls from consumers that their insurance companies had nonrenewed their policies for having as little as one water-related damage claim, and that they were subsequently turned down by several other companies. Some consumers even complained that they were nonrenewed for simply calling their insurance company to ask whether water damage was covered (BestWire, Dec. 4, 2002).
The company that offers CLUE to insurers, ChoicePoint, said at the hearing that insurers are using the database the same way they have since it first became available 10 years ago, to identify fraud, said Richard Collier, vice president of sales and marketing. The database is used only on new business applications. Insurers use their own claims experience for renewals, he said.
Insurers say water-damage claims--not the use of the CLUE database--are driving rates up in the state. California insurers paid nearly $2 billion for household water-damage claims between 1997 and 2001, according to a survey by the Insurance Information Network of California. The amount paid for the claims doubled in that time. In 1997, water-related claims paid were $206 million, but they rose to $431 million in 2001.
ChoicePoint brought some evidence of increasing water-damage claims to the hearing. Of the 2.96 million California claims in the CLUE database, about 1.7 million, or 57.4%, are water claims, Collier said. That's higher than the national average for water-damage claims of 37.7%, even though California has fewer claims per capita. Nationally, 65% of CLUE reports have no claims, while 70% of the reports in California have no claims.
Another concern of the insurance department was that consumers weren't being told that they were denied insurance because of a CLUE report. But Collier said when a consumer is hit with a rate increase or is turned down for insurance, insurers disclose if CLUE was the reason. Consumers can then contact ChoicePoint to see their report.
If there's something incorrect in the report, ChoicePoint will ask the carrier to verify and correct the data. "Only one-tenth of 1% of reports ever have a correction," he said, adding that there are six audit processes on each procedure to be sure the data are accurate before being loaded into the system.
In addition, a unique law in California requires that agents file a claim whenever a consumer calls about damage, whether or not the insurer pays on the claim, Collier said. It's to protect the consumer in the event the homeowner wants to file a claim on the same event in the future.
Although some consumers have said CLUE should be banned, Collier said that's tantamount to saying auto insurers shouldn't have access to state driving records. "Both help to disclose factual information about insurance risk," he said.
Also at the hearing were State Farm, Farmers and Allstate--three insurers that make up about 58% of the market in California.
"(The hearing) was important because it established that while there may be no crisis in homeowners insurance, there may well be a problem that needs some solving," said State Farm spokesman Bill Sirola.
He said Insurance Commissioner Harry Low noted that out of the 135 homeowners insurers in California, only 72 are active in the marketplace. "We think that was an extremely important point and probably would take more exploration and might be something that the Department of Insurance and the Legislature might take an interest in," Sirola said.
Allstate noted that in order to remain viable in the state, insurers must be able to correctly underwrite, assess and price for the risk. "We understand first-hand how challenging the homeowners market in California has been," said Allstate spokeswoman Lisa Wannamaker. "So, we're pleased to continue working with regulators to address any and all issues impacting homeowners insurance in California."
The CLUE report is "just another tool" to accurately match price and risk, ensure availability and identify fraud, she said. "Allstate doesn't make money unless we sell policies," she said. "We want a tool that allows us to sell policies, not decline them."
The top five writers of homeowners insurance in California by market share in 2001, according to A.M. Best Co. state/line data, were State Farm Group, with a 22.2% share; Zurich/Farmers Group, with 19.1%; Allstate Insurance Group, with 14%; California State Auto Group, with 5%; and Nationwide Group, with 4.2%.
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