Issue: How does use of the Comprehensive Loss Underwriting Exchange (CLUE) affect homeowners and insurers?
Insurance Companies Are “Red-Lining” Markets
By: Melody L. Luetkehans, Esq.
Is your new home insurable? It may not be if the previous owner has filed an insurance claim on the property.
If a seller previously had a claim against the property, especially a water damage claim, the home may be “stigmatized” for insurance purposes. How does this happen and what does this mean? It happens when a buyer applies for homeowner’s insurance. The insurance company checks the property address through a national claims database known as CLUE, the Comprehensive Loss Underwriting Exchange. This database is much like a credit reporting company to which insurers report their claims history against, not only the potential policy holder, but also the property. Almost all insurers are using the CLUE report to deny coverage, or exclude certain types of damage, on homes where the previous owner has made claims.
Insurers, in looking at any way they can decrease their risk exposure, not only review a buyer’s personal credit history, but the property’s claims history as well. Their risk reduction policies extend not only to denying coverage for specific properties, but to “red-lining” whole counties or markets. Insurers justify these draconian measures as legitimate business decisions based on two concurrent economic facts: one, a decrease in their investment revenue and two, an increase in claims.
One major insurer unilaterally determined it would no longer write policies in certain Nevada counties, such as Elko. This left currently insured homeowners with policies they couldn’t renew, and new buyers with no insurance options. What’s worse is that a homeowner who may not have made a claim may still be still penalized for a claim inquiry. Many insurance companies send information on all homeowner contacts to the CLUE database, whether the contact resulted in a claim or not.
The Nevada Association of REALTORS recently sent a survey to its brokers asking them what insurance issues they are seeing in the field. Fifty-six percent stated their clients have experienced problems with insurance availability and 60 percent have had premium increases. Twenty percent said real estate transactions were canceled because of non-affordability of insurance or uninsurability.
Home ownership is important to the nation’s economy. Industry business decisions that stand in the way of homeownership need scrutiny. Maybe it’s time for the public to look at how insurers determine what risks they will cover and where they will write coverage. Twenty years ago, banks were forced to stop red-lining areas in which they would not lend for “business reasons”. If the insurance industry doesn’t revamp the way it determines insurance eligibility, it may find a groundswell pushing for laws to force a change.
CLUE Reports Provide Important Information
By: Dana R. Bennett
For many of us, buying a home is the single most important – and expensive – purchase we make. Consumers rely on information provided by the seller regarding the condition of the home to help determine a fair price for the property.
Insurance companies also need information to determine a fair and accurate price for insuring the property and the homeowner. When considering an application to write a new policy on an existing home, insurers request the claim history on the person applying for insurance, as well as information on the condition and maintenance of the home that is about to be purchased.
In the early 1990s, some insurance companies began to use loss-history databases, sometimes referred to as CLUE reports, to access important underwriting information. CLUE reports contain up to five years of personal property losses and help insurers and agents deliver fast, accurate and less expensive underwriting decisions. Prior to the advent of CLUE, insurers considering an application to write a new policy on an existing home obtained property-loss histories in various ways: searching public records, requesting information from the applicant, and requesting information from the insurer currently writing the coverage for the property. CLUE reports make the exchange of this information much more efficient, benefiting homebuyers, home sellers, realtors and insurers.
Consumers have access to the CLUE report about themselves and their own properties. It is important for consumers to remember that only sellers have access to a CLUE report on their own property. However, many buyers are now stipulating that a copy of the report be disclosed as a condition of the real estate contract.
Some REALTORS and real estate sales organizations contend that CLUE reports are an unnecessary obstacle to buying and selling homes. Yet, there is no evidence to suggest that home sales have been affected by a supposed inability to obtain homeowner’s insurance. In fact, the National Association of REALTORS recently reported that existing homes are selling at record levels. Recently, Homebuilders Research reported a record for resales in April 2003 in Las Vegas, a 27 percent increase over resales in April 2002.
CLUE reports help consumers and insurers make certain the price they pay for homeowner’s coverage is fair and accurate. More importantly, they speed up the insurance transaction, facilitate prompt real estate transactions and provide homeowners and potential homeowners important information before making one of the most significant investment decisions of their lives.