Americans losing homeowners insurance over little-known industry program that blackballs certain homeowners

Published on

CBS TV Evening News (6:30 PM ET)


If you took out homeowners insurance to protect your home and family, you may be surprised to hear that you could use it and lose it. Correspondent Sandra Hughes in this Eye on America investigation has the story of a little-known insurance industry program that blackballs certain homeowners.

SANDRA HUGHES reporting:

Dave Swaffer’s Vista, California, home is his greatest joy, but also his biggest problem. He’s lived in this four-bedroom home for seven years, but after using his homeowners insurance for broken water pipes, State Farm dumped him.

After being turned down for renewal, how many companies did you pursue to try to get homeowners insurance?

Mr. DAVE SWAFFER (Homeowner): I had a total of 46 denials, whether it was through an agent or directly through the insurers.

HUGHES: The reason Swaffer couldn’t get insurance after being dropped by State Farm is a secret of the insurance industry called the CLUE system, the Comprehensive Loss Underwriting Exchange. Originally it was used by insurance companies to detect fraud. But now it’s being used against consumers to blacklist them for making any claim.

Mr. DOUG HELLER (Foundation for Taxpayer & Consumer Rights): But everybody knows that you’re going to have a claim. That’s the reason you buy the insurance in the first place. It may not happen immediately, it may happen after 17 years of having that coverage, but you shouldn’t lose your coverage just because you file a claim.

HUGHES: According to California’s insurance commissioner, in all of 2001, there were only 300 complaints by consumers who were dropped by their insurance carrier. In just the past four months, that number has shot to 1,200. Unlike a credit report or driving record, most consumers don’t know about their CLUE record. It’s often used to drive up premium prices. Swaffer finally got insured, but by an out-of-state, high-risk company.

Mr. SWAFFER: So my original premium was 700, it’s now $3,200.

HUGHES: State Farm and several other carriers won’t even write new policies in California, claiming losses outweigh premiums.

Mr. BILL SIROLA (California State Farm Spokesperson): It’s not a step we like to take, it’s not something that comes naturally to a company like State Farm, and we had to do that, given the financial position we were in.

HUGHES: Consumer advocates say it’s not just claims. A look at the company’s records shows they are in financial trouble because of the stock market, losing big on Tyco and WorldCom investments. Even this Farmers Insurance agent agrees the cost of those losses are being passed along to consumers.

Mr. IAN RUBIN (Agent, Farmers Insurance Group): They probably shouldn’t, but, you know, in the real world they are. Why should, you know, someone pay more for gasoline because we have a war in Iraq?

HUGHES: Dave Swaffer doesn’t know the answer, but he does know he’s stuck.

Mr. SWAFFER: If I tried to sell my house, according to my real estate agent, my house is unsellable because it’s uninsurable at this point.

HUGHES: And it takes at least five years for a claim to be erased from the CLUE record, leaving Swaffer with a well-maintained and beautiful burden. In Vista, California, this is Sandra Hughes for Eye on America.

Consumer Watchdog
Consumer Watchdog
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