by Liz Pulliam Weston
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.
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.”
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 billions of dollars on homeowners insurance in recent years,
however, insurance companies have become more aggressive about screening for
other risks -- including damaged homes that could spawn future claims.
State Farm 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.
While you can’t do much about insurers’ overreactions, you can do something
to protect yourself in this particularly difficult time. Among them: