You probably know that itâs 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. Whatâs more, you could find your homeâs 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 homeâs 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.
Consumers held hostageThe 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 didnât 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 Farmâs damage report as the reason they wouldnât write a policy, Jan Garder said.
âUntil then, we didnât know anything about the CLUE database,â she said. âWe really didnât have a clue.â
State Farm declined to comment on the Gardersâ 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, ChoicePointâs 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.
Whatâs 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 thatâs already been rejected by many insurers.
âYou are totally blackballed,â said Jan Garder, 49. âThey should not be able to hold a consumer hostage like this.â
Insurance companies get aggressiveIn 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 nationâs largest property insurer has dropped thousands of policyholders from coast to coast and stopped writing homeowners insurance in several states.
So far, insurersâ 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 Brokersâ 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.
âRight now, itâs still a pretty isolated problem,â Tribble said, âbut that could change if they (insurers) continue to do this. ⦠If youâre not able to get insurance, youâre not able to close the deal.â
Tribble thinks itâs particularly unfair that a home could be blackballed because of one claim, let alone a single report of damage that didnât lead to a claim.
âInsurance companies want to keep their costs down, which is understandable,â Tribble said, âbut this is what you have insurance for -- to cover you for accidents.â
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.
Whatâs notable about their most recent mood swing was how quickly it happened, spurred in large part by last yearâs losses and the massive increase in mold-related claims, especially in Texas and California.
How to protect yourselfWhile you canât do much about insurersâ overreactions, you can do something to protect yourself in this particularly difficult time. Among them:
1. 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 thatâs scaring insurers the most these days. Itâs 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.
2. 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.
3. 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.
4. Donât tell your insurer about problems unless youâre sure youâll file a claim. This last piece of advice is unfortunate, because insurers and insurance agents can be a decent source of counsel on whether itâs worth filing a claim. Since any damage you report could get passed on to the CLUE database, however, itâs smart now to err on the side of caution.
5. Consider getting a copy of your CLUE report. If youâve been denied insurance, you can get a copy of your homeâs CLUE report for free; otherwise, youâll pay about $9. You have a right under federal law to dispute any erroneous information on the report. To get a copy, contact
ChoicePoint by visiting
www.CoiceTrust.com.