National Underwriter

Insurers can and should use claims information in the underwriting and rating process–no one seems to dispute that. But there is something about the most popular personal lines claims database in use today that just doesn’t sit right with some consumer watchdogs and state insurance regulators.

The Comprehensive Loss Underwriting Exchange reports produced by Alpharetta, Ga.-based ChoicePoint provide underwriters with information about claims filed under homeowners and personal auto policies.

According to ChoicePoint, 90 percent of homeowners insurers and 95 percent of auto insurers contribute data to C.L.U.E. It is by far the most widely supported and widely used personal lines claims database, according to ChoicePoint.

So why are these reports controversial to the point that new California Insurance Commissioner John Garamendi has made them a focal point of his regulatory agenda? (See National Underwriter, January 27, 2003.)

“One of the problems with C.L.U.E. reports is that realtors don’t like them because they can hinder their ability to sell homes,” explained Joe Annotti, vice president of public affairs for the Des Plaines, Ill.-based National Association of Independent Insurers.

“Every claim inquiry or report by a homeowner, even those that don’t result in any loss payment, are reported to ChoicePoint and go into the database,” Mr. Annotti noted.

“Let’s say the homeowner reported three water damage claims, but nothing was ever paid on two and there is one small reserve for an anticipated payment. This shows up on the C.L.U.E. report for that property address as three ‘losses.’ The house may be deemed by an insurer to have a water damage problem and possibly a costly-to-remediate mold problem as well.”

This is where insurer underwriting guidelines come into play, Mr. Annotti pointed out. “Company A might look at a C.L.U.E. report and see no loss payments and say ‘this is a good risk.’ Company B sees three incidents were reported and says ‘we won’t write this.'”

ChoicePoint is quick to note that they are in the process of “making peace” with realtors. Richard Collier, ChoicePoint’s vice president of marketing and sales, notes that in some states–including California–it is becoming standard for sellers to provide realtors with a copy of the C.L.U.E. report up front so that there are no unpleasant surprises at closing.

“Realtors are even starting to include references to ChoicePoint and C.L.U.E. on their Web sites to facilitate obtaining the reports,” Mr. Collier added.

Doug Heller, senior consumer advocate with the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights, agrees that C.L.U.E.’s failure to differentiate between paid claims and other types of claim-related contacts that consumers have with their insurers is a sticking point.

“C.L.U.E. treats mere ‘inquiries’ by consumers, in which they let their insurer know about an event that might be insured, as ‘claims,’ even though there might never be any follow-through or payment,” explained Mr. Heller.

But ChoicePoint’s Mr. Collier replies that insurers are often required by law to record all claims reported to them and to set reserves for the anticipated loss amount. He also explained that there may have been no payment made because the policy has a large deductible, yet a subsequent insurer would still be interested in knowing about the claim to determine if there are problems with the property that might lead to much larger future problems.

“Some who don’t like the reports think they should be limited to showing paid claims only,” NAII’s Mr. Annotti said. “But insurers want to know about all the claim activity, not just those that result in a loss payment,” he stated.

Another flaw with the reports, according to consumer advocate Mr. Heller, is that they can be linked to the property address and not necessarily to the consumer applying for insurance. So a claim that may be traceable to neglectful maintenance by a former owner is on the C.L.U.E. report, and the potential new owner is unfairly tagged as “high risk,” he said.

ChoicePoint’s Mr. Collier counters that insurance companies have a legitimate underwriting reason to consider claims tied to a certain property.

“Let’s say the property has had prior water damage. The damage may have been small and was repaired, but there may be an indication of corroded pipes, or the possibility of costly mold remediation down the road, and the potential for progressively higher claims.”

Insurance applicants who object to something in their C.L.U.E. report have an opportunity to challenge it, Mr. Collier said. “They can order it on the Web for $12.95, and we will insert their explanation into the report.”

However, the applicant cannot actually change anything in the report, and there’s the rub, according to consumer watchdog Mr. Heller. “Only the insurance companies can change the information, and they are being intransigent and sticking with the ‘incorrect’ data,” alleged Mr. Heller.

“Consumers become ‘marked’ because of this database over which the public has no control, and prevented from buying reasonably-priced insurance.”

Mr. Heller also complains that some insurers are using the C.L.U.E. database to aggressively non-renew or sell at high prices in the tight insurance market. “People have become afraid to file claims and their homes are becoming less safe because damage is not being repaired,” Mr. Heller said.

“C.L.U.E. is used for new applicants, not renewals,” Mr. Collier of ChoicePoint replied. “Insurers already have data on their existing clients.”

Many of the C.L.U.E. issues raised relate more to how insurers interpret and utilize the data provided than to the actual content of the reports.

“We provide facts,” ChoicePoint’s Mr. Collier stressed. “We don’t make recommendations about how the information should be used.”