OII Backgrounder: CLUE reports and insurance
7/03

What CLUE reports include

Comprehensive Loss Underwriting Exchange reports or CLUE reports track a variety of homeowners insurance claims such as lightning, earth movement, theft/burglary, freezing water, vandalism, fire, hail, wind, dog bite, credit card, etc. A report also shows whether a claim was related to a recognized catastrophe. The report also shows the amount paid by the insurance company on each claim, including those in which no payment was made. CLUE reports include reported claims on a property within a five-year period.

How claims end up on CLUE reports

If a policyholder or insurance agent directly contacts the insurance company regarding a claim, it will likely appear on a future CLUE report. If a general discussion between a policyholder and agent regarding a potential claim results in no claim being filed, it will likely not be subject to a CLUE report. However, some agents may have a contractual obligation to report any conversation on an incident that might result in a potential claim to the insurance company. Also, there are times when a policyholder will ask his/her agent to submit a claim to double-check on whether coverage applies. If it is not a covered loss, it will appear on a CLUE report as a claim, with no payment made. NOTE: For more information on this topic, refer to the Ohio Insurance Institute’s CLUE/Homeowners survey, found at the end of this report.

How CLUE reports are used

There are companies that use CLUE reports to some degree in making underwriting decisions, since they outline a property's claim history. Other companies prefer to look at an individual's personal claim history, not the property he/she is planning to buy.

Based on an October, 2002 survey of ten Ohio homeowners insurance companies representing over 64% of the market (based on 2000 direct premiums written), companies typically look at the claims history of the individual, using the information on the property to evaluate potential risks. If, for instance, a property loss is related to activity not directly the fault of the homeowner (i.e. tornado), it may be weighted differently than one caused by his/her negligence in future policy considerations. The types of claims that are potential red flags are those that are water-related, especially multiple water-related claims which might mean that the source or cause of the loss has not been fully addressed by the homeowner. NOTE: For more information, refer to the Ohio Insurance Institute’s CLUE/Homeowners survey, found at the end of this report.

CLUE reports help insurers gauge risk. A home with multiple water claims may or may not be as insurable as a home with perhaps one theft claim. If a CLUE report indicates that the property may represent an unusual risk, some companies rely on their agency force to determine the chance of a loss reoccurrence. Insurers have a 60-day underwriting period to review an insurance contract they write on a property. During that period, the property may require additional inspections or review, based on CLUE reports or other findings. An example would be a property that had experienced a major fire. The insurance company or agent may want to inspect the property to ensure that the damages were fully repaired and up to safety code. This benefits the prospective homebuyer. In a small percentage of cases, there may be a premium adjustment or notice of cancellation if the property’s risk does not meet the company’s underwriting guidelines.

CLUE reports prove to be invaluable especially when monitoring potential fraud activity. If a policyholder has a record of filing a series of similar claims, even if they're on different properties, it could be potential red flag. Or, if a report shows a reoccurring claim on the same home, it may mean shoddy workmanship or an even more serious underlying problem.

Although homebuyers can't order CLUE reports on properties they are looking to buy, they can order them on their own properties through ChoicePoint's ChoiceTrust program, which is one of the reporting systems used by insurers. ChoicePoint offers a property claim report of your primary residence for $12.95. The report provides a 5-year property claims history. For more information go to www.choicetrust.com

Only insurance companies and current homeowners currently have access to a property's claim report. However, a homebuyer may want to consider viewing the CLUE report as a condition of the sale. That way the potential homebuyer can see what types of losses and repairs have been made to the property and get a better read on the home's condition. For example, if an insurance agent pulled a CLUE report and saw a major claim (i.e. $100,000 fire) on the property, he likely would want to make the potential homebuyer aware of it even though the seller would have likely informed the homebuyer.

OII CLUE/Homeowners insurance survey findings
July, 2003

The Ohio Insurance Institute conducted a survey in June 2003 involving the majority of its members who also represent the majority of Ohio’s homeowners insurance writers (based on 2002 direct premiums written). The survey was developed to help define how Ohio insurers handle coverage inquiries, what activities are subject to inclusion on CLUE reports and how CLUE reports affect homeowners underwriting/pricing decisions.

The 16 participants in the survey represented nearly 65% (64.94%) of Ohio’s homeowners insurance market based on 2002 direct premiums written. Another company contacted by the OII sold its homeowners book of business and no longer writes this line.

Key findings follow and are based on the total percentage of respondents in respect to their overall market shares, unless noted otherwise. In some cases the percentages do not add up to 100 due to rounding.

• General policyholder inquiries/coverage questions to his/her insurance agent are not automatically subject to a CLUE database.

  95% of the respondents report that if a policyholder contacts an agent directly regarding a potential claim or coverage clarification, this contact may be documented for agency-only internal use at the agent’s discretion.

  5% of the respondents indicated that an inquiry to the agent would be forwarded to the company’s home office to determine how this contact information would be documented and whether it's subject to inclusion in a CLUE database.

• Most companies indicated again that general policyholder inquiries/coverage questions made directly to his/her insurance company (via toll free number, call center, claims department, online claims filing form, etc.) are also not automatically subject a CLUE database, unless the action results in filing of a claim.

  83% of the respondents indicated that when a policyholder contacts their company directly regarding a potential claim or coverage clarification, this contact is documented for internal use only and not subject to inclusion in a CLUE data base, unless a claim is filed and payment is made.

17% indicated that if a policyholder contacts their company directly regarding a potential claim or coverage clarification, this contact is automatically subject to inclusion in a CLUE database, regardless if a claim is filed or payment is made.

• 15 of 16 companies or over 99.9% of the respondents stated that they do not require agents to report general inquiries or claims-related questions to their company unless they become a bona fide claim.

• In cases where a policyholder asks his/her agent to submit a claim to double-check on whether coverage applies, 13 companies or about 90% of the said it is subject to a CLUE report regardless if coverage applies. Importantly, 66% also indicated that various factors are weighted differently when taking CLUE reports into consideration, i.e. that a claims inquiry with no payment made carries less weight than an actual paid claim.

• Nearly 70% of the responding companies noted that their policyholders have a contractual obligation to report any potential claim to them.

• Companies vary on how CLUE data is used when evaluating new applicants and renewals.

  Less than half (43%) of the respondents consider claims with no payment as a factor when evaluating new applicants and renewal business.

  Catastrophe-related claims (hailstorms, tornadoes, etc.) are considered by many of the respondents (nearly 72%) in evaluating a current policyholder for possible nonrenewal or premium increase. About 29% indicated they do not.

  Most of the respondents, 83% take catastrophe-related claims into consideration for new applicants.

  In evaluating a new applicant, insurers use a variety of approaches. 23% of the respondents indicated that they review both an individual's personal claims history AND the property to properly assess the risk. Over half (54%) look at only the applicant's personal claims history. 24% responded that they review the personal claims history of the applicant and review water-related losses on the property to assess future risk potential.

  Most of the responding companies, 79%, use 3 years of claims data and information on CLUE reports when evaluating a new applicant; about 21% rely on 5 years of data.

  In cases where a current policyholder applies for coverage for a new residence, about half (48%) of the reporting companies indicated that they do not use CLUE reports on the new property; 39% of those responding said they look at a 3-year report; about 6% of the respondents look at a 5-year report. 8% reported that CLUE reports are not always used in assessing the risk of a new residence on a current policyholder.

Insurance companies find that CLUE report information helps determine the potential for risk, but it doesn’t seem to be the overlying factor. Over half (55%) of the respondents indicated that 5% or less of their new applicants are cancelled during the 60-day underwriting period based on information found in CLUE reports.