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| | 1/5/2009 10:26:09 PM |
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.
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.
© Copyright 2009 The Miller Law Firm. All rights Reserved.
If you experience problems or have questions, contact us at Info@ConstructionDefects.com.
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