CLUE & A-PLUS Provide Help to Home Buyer

The Insurance Services Office (ISO) and ChoicePoint maintain loss history databases regarding insurance claims for homes and automobiles. The ChoicePoint database is called the Comprehensive Loss Underwriting Exchange (CLUE) and the ISO database is the Automobile-Property Loss Underwriting Service (A-PLUS).  Each has millions of claims on record and generate reports about both policyholders and properties that assist insurance companies in determining risks. These reports include claims for the past five years.

The only new element in these reports is the automation, which speeds up the insurance application process; makes it more reliable and efficient; and helps reduce costs. These databases were developed in the mid-‘80s.  Prior to that time, insurers would write letters requesting loss histories from companies that had previously insured new customers and properties. 

In addition to insurance companies, anyone with a financial interest in a property, such as a homeowner, can order an A-PLUS or CLUE report from ISO and ChoicePoint, respectively.  If an A-PLUS or CLUE report generates information that adversely affects the individual seeking insurance, the report is made available for free. These guidelines are set by federal regulation. A prospective buyer’s real estate agent can order a loss history report after placing a contract on a home for sale. The seller can also be asked to furnish a copy. 

Real estate agents are incorporating loss history reports into the sales process, and are instructing buyers to focus on insurance early in the closing process. Most people and properties, somewhere between 70 and 85 percent depending on the database, do not have claim histories.  

Key Points

• Loss history reports are pro-consumer. It is a process that provides homebuyers more information before making a very important financial commitment. They put everyone – homebuyers, sellers, insurers and real estate agents; on a level playing field.

• Reports cover claims on file for five years. The average homeowner files a claim every ten years.  So most properties and most people don’t have any claims on record.  If an insurer sees a claim on file, the insurer and homebuyer have the same interest, ensuring that damage was properly repaired.  When an insurer sees a policyholder with multiple claims, there are legitimate questions as to whether insurance is being used as a home maintenance tool rather than what it is really designed for, protecting homeowners from disasters.

By The Numbers

• CLUE was formed in 1992.  About 600 companies contribute to the CLUE database.  Forty million claims, all personal property, are in the database.  There is also a CLUE auto database that was built in 1987.  The average varies from state to state, but approximately 67 percent of consumers in the database have no claims.

• More than 1,250 insurance companies contribute to the A-PLUS database, which was created in 1986 and now includes about 50 million claims.  Again, averages can vary, but roughly 75 to 85 percent of all inquiries from participating insurance companies or insurance producers are returned with no losses being reported.

• The A-PLUS database, for example, can produce a standardized report in seconds, speeding up the insurance underwriting process.  A report includes the following:
  • Insured and/or property
  • Type of insurance coverage, carrier and policy number
  • Type of loss, including cause, date and amount
  • Claim status, including loss amount (might be lower because of a deductible)
  • Whether the loss resulted from a catastrophe, such as a hurricane
  • Whether the property has a mortgage
  
  

   

  Annual New Home Prices for Past Five Years

  Period Median Average 2007 $243,600 $307,800 2006 $246,100 $305,700 2005 $240,900 $297,000 2004 $221,000 $274,500 2003 $195,000 $246,300 Sources:  U.S. Bureau of the Census

   

  Annual Existing Single-Family Home Prices

  Median Sales Price of Existing Single-Family Homes   U.S. Northeast Midwest South West 2007 $217,900 $288,100 $161,400 $178,800 $342,500 2006 $221,900 $271,900 $167,800 $183,700 $342,700 2005 $219,600 $271,300 $170,600 $181,700 $335,300 2004 $195,200 $254,400 $151,500 $171,800 $289,100 2003 $180,200 $220,300 $143,700 $159,700 $254,700 2002 $158,300 $164,300 $136,200 $147,500 $214,100   Mean Sales Price of Existing Single-Family Homes   U.S. Northeast Midwest South West 2007 $266,200 $313,300 $196,100 $225,900 $372,500 2006 $268,200 $299,700 $205,300 $230,000 $371,300 2005 $267,400 $306,000 $201,000 $231,800 $368,800 2004 $245,800 $283,100 $186,600 $217,400 $328,100 2003 $225,000 $254,800 $178,200 $199,100 $294,000 2002 $201,700 $211,400 $166,200 $185,300 $263,600 Source: National Association of Realtors

   

Questions and Answers

Don’t these databases “blacklist” homes with claims, particularly water damage claims?

• Loss history reports are not blacklists.  It’s a caution flag for a prospective homebuyer and prospective insurers that something in the home merits closer scrutiny.



• No one involved in the sale of a home – the seller, the buyer, the real estate brokers and the insurer – wants a nasty surprise.  Loss history reports simply provide useful information.  By helping reduce insurer loss costs, this also helps keep insurance affordable for all.

Critics object to how these databases are being used by insurers.  They were originally intended to prevent fraud, but now they are being used almost secretly to deny coverage or non-renew policyholders with just one claim.  Is that fair?

• It's not true. These databases are tools that still prevent fraud but also help in the insurance underwriting process. Insurers have used prior claims to evaluate properties for literally more than 100 years. Previously, this process was manual – one company would write a letter to another company, requiring a response. This took time and added cost to the insurance underwriting process. Now an insurance company can complete this task in seconds. This means that homebuyers who have insurance questions can get answers quickly.



• There is nothing secret about these databases or how they are being used. Imagine buying a used car. We would want to have the ability to find out as much as possible about the history of that car before driving it off the lot. Loss history databases do that for “used” homes. Existing homeowners and potential homebuyers have access to the same information the insurance company has.



• Loss history reports are not used when renewing existing policyholders. Insurers certainly review a homeowner’s claim record as part of the renewal process, but that is information the insurer already knows. CLUE and A-PLUS do not enter into the picture. Insurers order an A-PLUS or CLUE report when evaluating new business, not making a judgment on existing business. 



• Having a claim in a report doesn’t have to be a negative. If the home was damaged, for example, and a new roof installed, an insurer will likely see that as a positive, since it reduces the likelihood of water damage seeping through damaged shingles. 

I’ve heard stories of people being unable to get insurance because these reports include inquiries to insurance companies, even though no claim was ever filed.  Can insurers legally do this?

• Federal regulations allow insurers to contribute to this kind of database for insurance underwriting.  Individual companies, subject to its policies, procedures and state regulations, make the decision regarding what to input into the CLUE and A-PLUS databases.  Individual companies, based on their underwriting standards, evaluate the information contained in these reports differently.  If information contained in the database is used to deny insurance coverage, or if coverage costs more, the insurance company must notify the individual affected.  He or she is entitled to a free copy of the loss history report and can question its accuracy.



• The fact that no claim was filed does not necessarily mean there was no damage.  There may well be damage, but it was under a homeowner’s deductible.  A person may have been interested in filing a fraudulent claim, but was deterred because of the database.  You have to understand that the claim track record of a home or individual is important in helping insurers evaluate future risk.  Small problems now, can in some cases indicate higher potential for bigger problems later.

Why does an insurance company hold a claim against a policyholder when no money was paid out?

• Take a situation where a basement was flooded.  If the basement was flooded because of a burst pipe, that situation is covered by a homeowners’ policy.  If the basement was flooded because the local river overflowed, the government’s National Flood Insurance Program, not private insurance, covers that.  Either way, this damage has a bearing on how the insurance company views that property in the future, including the possibility of mold, that has nothing to do with whether the flooding was insured or not.

People are now worried that a conversation with their insurance company will be logged as a claim.  Shouldn’t they have a right to call an insurance company without fear of having it used against them later?

• Loss history reports are not used to punish customers.  Insurers want to attract new customers and retain good customers for a long time, just like any business.  But if an insurance company attracts more business and loses money in the process, no one’s interest is served, least of all existing policyholders who shouldn’t have to worry about the financial strength of their insurance company.  These reports are valuable tools that insurance companies can use to help determine who to offer insurance to and what they should pay for insurance for specific properties.



• People should think about how and when to use their insurance policy, just as they should think how and when to invest their money.  People should not be afraid to use it when they need to, but people should be careful not to abuse it as well.  It is an asset, and how it’s used has a bearing on its availability and its cost.

Real estate agents express concern that this practice can make it more difficult to finalize a sale and that many deals fall through at closing.  Is this happening?

• Sellers and their agents, who in most states have a disclosure obligation as part of the closing process, should thoroughly review the property’s loss history report and incorporate any insurance issues that exist into their sales approach.  There are efforts already underway in certain states to help real estate agents gain an early insurance perspective on properties they are listing.

Some real estate agents say loss history databases make a lot of housing, particularly inner city properties, uninsurable and part of a pattern of redlining.  Is this a fair criticism?

• First of all, redlining is illegal.  These databases help provide insurance companies with the claims history of a specific property so they can make informed insurance underwriting judgments.  There is nothing in the database that relates to anything other than an individual property and individuals with a financial interest in that property.  It doesn’t say anything about the street that house is on or the neighborhood that house is in.



• Finally, many inner city housing advocates see it as a useful tool.  Prospective home buyers who know the recent history of the home are better able to evaluate the property value and affordability.

Some insurance commissioners want to restrict insurers’ use of CLUE and credit reports.  Yet these are tools the insurance industry says it needs for effective underwriting?

• If insurance regulators are really interested in more competitive insurance rates for consumers, they have to allow insurers to use effective tools that are proven to lower insurance costs, which in turn enable companies to offer better rates to more people.  Insurers use credit-based insurance scoring because it allows for more fair, objective and accurate underwriting.  Loss history databases have not changed the way insurance companies operate.  It simply automates underwriting practices that have long existed.  In doing so, insurers are able to lower their expenses, which in turn help consumers. 



• Two out of every three people are helped when credit-based insurance scoring is used in insurance underwriting.