Insurers keep a secret history of your home

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The Basics

Insurers keep a secret history of your home

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.

By Liz Pulliam Weston

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 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 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 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 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.