If you've filed a lot of insurance claims lately and think you should switch companies before your insurer jacks up your rate, you might want to reassess that. When it comes to property and casualty insurance, you can run but you can't hide.
Thanks to a little-known insurance industry database -- the Comprehensive Loss Underwriting Exchange (CLUE) -- your property and auto insurance claims history is an open secret among insurers. Almost all insurers share information about their clients in the CLUE database, then review that data before deciding whether to offer a policy to a prospective customer and what sort of rate to offer.
CLUE, a unit of data giant LexisNexis, and its much smaller competitor, A-PLUS (the Automated Property Loss Underwriting System), serve a similar function for the insurance industry as the Equifax, Experian and TransUnion credit bureaus do for the credit card business.
Insurance companies share data with the CLUE system. Underwriters use the information to decide whether to offer you a policy and what rate to charge you for that coverage. Typically, an underwriter will review your entire property or auto insurance history and then take a look at your credit score as well before he quotes a rate.
If you haven't filed many claims, CLUE probably isn't your enemy. Dick Luedke, a spokesman for State Farm Insurance, says CLUE makes it possible for the industry to differentiate lower from higher risks, enabling it to charge lower premiums to lower-risk customers.
If you've filed a number of claims, however, you may have a bad CLUE record. This can make it as difficult to find home or auto insurance, as a bad credit rating can make it hard to obtain a loan.
How many claims is too many? Steve Gillard, product principal for CLUE in LexisNexis' insurance data services unit, says that each insurer has a different threshold.
Although Gillard won't specify numbers that might flag a policyholder, it may not take too many claims for a consumer to stand out in the database. Typically, only one-third of policyholders ever file a claim, according to Gillard. On average, each claimant's record in the CLUE database contains roughly 1.5 claims.
A history, not a number
Unlike your credit score, which is based on an 850-point scale, your CLUE report is not a score. Instead, it's a summary of all your previous insurance claims. You don't end up with a CLUE score as such, but insurance companies have their own internal rules for weighing evidence that a potential client might be too expensive or troublesome.
Another important difference between the reports is that sometimes other people can ruin your CLUE standing. The reason: CLUE property reports combine information on the owner with information on the property or automobile itself. If an insurer paid out several claims before you bought the car or house, you may find it more expensive to buy insurance than you may have thought, even if your own record is fine.
“If the property has had a claim filed, the consumer can have that counted against them,” says Birny Birnbaum, executive director of the Center for Economic Justice, a group that fights to make services more affordable for the poor.
However, LexisNexis insists that problems with CLUE are rare. Gillard, the CLUE executive, says about four disputes are lodged for every 10,000 reports issued, and some of those are simply misunderstandings, such as a client not telling his wife about an incident.
As with the credit reports, the Fair Credit Reporting Act covers CLUE, which means you have the right to a free copy of the report once a year. If the information turns out to be invalid, it's possible to call CLUE and request that the information be removed or clarified. For instance, parents of a teenager who wrecked the family car a few years back can enter a comment explaining that they weren't at the wheel when the accident happened.
“Assuming you can document the problem, you should be able to have it removed if it's in error,” says Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse.
What should you do about CLUE?
Watch your claims. Insurers look at CLUE closely. If they see on the report that you've made a lot of claims over a long period of time, they may peg you as a less-than-desirable client. Even the number of calls to insurers sometimes is noted.
Get a CLUE before you buy. If you're buying a house or a used car, ask the seller to provide a CLUE report. LexisNexis prepares special reports that can show the claims history only on a certain car or property.
Check your report. Occasionally, CLUE makes a mistake in a file. If you're finding yourself mysteriously rejected for home or car insurance, you may want to review your record.