1)         Most of the information needed to underwrite and rate an insurance policy comes from the application.

2)         Companies also use physical inspections and claims histories as part of the evaluation.

3)         Claims history was formerly obtained by phone, fax or letter.  Now companies use Loss History Reports produced by CLUE and A-PLUS to get claims histories.

4)         Loss History Reports are simply a record of losses.

5)         CLUE, operated by ChoicePoint, stands for Comprehensive Loss Underwriting Exchange.

6)         The Insurance Services Office (ISO) provides A-PLUS, which stands for Automobile-Property Loss Underwriting System.

7)         70% to 80% of consumers and homes have a clean Loss History Report.

8)         Insurance companies have used Loss History Reports for 10 years.

Why the recent controversy about Loss History Reports?

The Facts

1)   The Homeowners line of business has lost money for a number of years.  In 2001 companies paid out an average of $1.22 for every $1.00 collected in premiums.

2)   Tighter underwriting guidelines and higher rates were needed to reduce losses.   Loss History Reports have become a more prominent tool as a result.

3)   Increased attention to Loss History Reports is due to more complete underwriting of the risk of future claims, including water losses.

4)   Water losses are a concern because of recent multi-million dollar jury awards for mold damage not covered under the policy. 

5)   Coverage is usually excluded for mold damage, except when resulting from a covered loss – such as a fire, windstorm or broken pipes. 

6)   Maintenance problems, such as a gradual roof leak, are typically not covered.

7)   More than 10,000 mold-related lawsuits are pending in state courts around the nation.

 The Myths

1)      Loss History Reports come from a mysterious, secret database.

2)      Loss History Reports include Credit information or other data.

3)      Loss History Reports include a “Loss History Score.”

4)      Renewal insurance policies are being canceled due to Loss History Reports.

5)      Realtors are losing deals because of Loss History Reports.

Facts vs. Myths

1)      Loss History Reports are readily available to homeowners and are not secret.

2)      Loss History Reports contain only information from insurance companies – no other information is included in Loss History Reports.

3)      Loss History Reports do not include a “score” and make no recommendations.  They are simply a record of what actually happened.

4)      Loss History Reports are used only for new business.  Companies use their own data for renewals.

5)      For Realtors, Agents and Consumers, Loss History Reports are not the problem.  A Loss History Report is just a record of the facts.  The tighter underwriting guidelines and higher rates needed to reduce losses have resulted in closer scrutiny of prior claims. 

6)      Additionally, home sales are setting records and the vast majority of homeowners are obtaining insurance readily. 

 
What’s in a Loss History Report?

1)   CLUE reports include loss information from 600+ companies (90% of homeowners insurance carriers).

2)   A-PLUS includes data from 1200+ companies (90% of the industry’s premium volume).

3)   Both systems sort by person, property or vehicle.

Why do Insurance Companies use Loss History Reports?

1)      Loss History Reports make gathering claims history more efficient, more reliable and less expensive.

2)      When a Loss History Report is used to evaluate a property, the underwriter is looking to verify its condition.

3)      Companies don’t want to “buy a claim” that started before the new policy was in force.

4)      Companies want to charge an appropriate rate for the actual risk of a future loss – without asking lower-risk customers to subsidize customers or properties with higher-risk characteristics.

How do Insurance Companies Use Loss History Reports?

1)   Loss History Reports are used only for new business.  Companies use their own data for renewals.                          

2)   Some companies look at both the applicant’s claims history and the claims history of the home being purchased.

3)   Other companies underwrite only the applicant’s personal claims history, not the home they’re buying.

4)   Some companies consider any incident (paid or not) as relevant because damage actually occurred. 

5)   Other companies only count a loss if the insurance company paid a claim.

6)   Some insurance companies will not write a new policy for a home that has prior water damage unless the buyer can provide an inspector’s report showing that repairs were complete and effective.

 
How are Loss History Reports used by Consumers?

1)      Loss History Reports do not take the place of Home Inspections and reading the Disclosures from the seller.

2)      Loss History Reports only contain property loss information reported to an insurance company. A property loss that is handled by the homeowner without contacting an insurance company will not appear in a Loss History Report.

3)      Homeowners can obtain Loss History Reports prior to listing their homes to review the reports for accuracy and make any corrections needed before the home goes on the market.

4)      Some homebuyers are requiring a Loss History Report from the seller prior to making an offer.

5)      Homebuyers can use Loss History Reports as an additional source of information for identifying prior damage.

6)      These reports can be used as a guide for an inspector to verify that repairs have been done properly for any prior damage appearing in the report.

7)      Consumers can get a CLUE report showing a 5-year history for themselves and the homes they own. A-PLUS reports show an individual’s 5-year history and the home’s history for as long as the person has owned that home.

Who can get a Loss History Report?

1)      Insurance companies, insurance agents and homeowners have access to Loss History Reports.

2)   A homebuyer can’t access these reports until a real estate contract is signed, due to the “permissible access” rules of the Federal Fair Credit Reporting Act (FCRA).

3)      Buyers can request a Loss History Report from the seller before making an offer on the home. 

How does an authorized person get a Loss History Report?

1)   CLUE reports are available at 888-497-0011 or online at ChoiceTrust.com for $9.00.

2)   A-PLUS reports are available at 800-709-8842 for $9.00 by mail or $13.00 by FAX.

What if a homeowner disagrees with the information in a Loss History Report?

1)   If there is a dispute over a claim in a report, ISO or ChoicePoint will contact the insurance company on the consumer’s behalf.  Under FCRA, the insurance company has 30 days to respond. 

2)   If the company fails to respond within 30 days, the claim is removed from the report.

3)   If the item is not removed, the homeowner has the right to add a permanent statement to the report.

4)   Consumers who are adversely affected by a Loss History Report can get a free copy of the report.

5)   Less than 1% of all disputes require a change in the A-PLUS or CLUE reports.

Why is the 60-day Underwriting Period important?

1)      After a policy issues, companies have 60-days to verify the risks associated with the property – using information from the application, inspections, and Loss History Reports.

2)      Increased home sales increase pressure on application processing and inspection schedules, increasing the time needed to evaluate the application.

Potential impact of limiting underwriting period and/or Loss History Reports

 1)      Limiting an underwriter’s ability to gather information will increase the time needed to evaluate an application, leading to longer time from application to policy issuance.

2)      Limiting the time an underwriter has for evaluation will result in some denials of coverage for policies that would otherwise have been issued if additional time was available to investigate the facts.

3)      Limiting underwriting accuracy penalizes the lowest-risk customers.

4)      Increased operating costs from more cumbersome data gathering methods can lead to increased premiums.

Solutions

1)      Create accurate expectations by educating yourself about Loss History Reports.

2)      Sellers can get Loss History Reports before listing to check for accuracy and correct any errors that they find.

3)      Buyers can request a Loss History Report from sellers before an offer is made.

4)      Encourage new homebuyers to apply for insurance within 5 days of an accepted offer.