Every claim made on your property's insurance coverage—whether made by you or by a previous owner—can have an impact on your premiums.
That makes it important to understand the Comprehensive Loss Underwriters Exchange (CLUE) report that tracks the claims history of your property even before you buy it. It also means you should think carefully about how and when to tap your property insurance coverage to avoid premium increases.
Insurance companies throughout the country submit information to a central database, which is used to create the CLUE report and its smaller counterpart, the Automated Property Loss Underwriting System (A-PLUS).
The CLUE Personal Property report provides a seven-year history of claims made by you as an individual as well as claims made on a specific property. A separate CLUE report is available for auto insurance policies. Both types of CLUE reports are provided by LexisNexis Risk Solutions, Alpharetta, Ga.
Your CLUE Personal Property report is combined with your personal profile to determine whether you'll be offered homeowners insurance, the amount of coverage available, and your property insurance premiums.
Insurance industry representatives say using CLUE reports helps them assess the likelihood of future claims when setting premiums. But consumer advocates note that CLUE can have an unfair negative impact on consumers, especially when reports contain errors.
"You may be paying more for insurance than you should because of an error in your CLUE report," says Amy Bach, executive director of United Policyholders, a nonprofit organization based in San Francisco that provides information and resources to help consumers make better decisions when buying insurance. "You may also be paying more to insure your home because the previous owner filed a claim, which seems patently unfair."
For example, insurance agents sometimes report policyholder calls to inquire about potential claims as actual claims, despite laws in many states forbidding this practice. This problem prompted some states to adopt regulations requiring insurance companies to notify consumers about how and when CLUE reports are used.
"There has been a slow but steady increase in the number of states adopting regulations or statutes related to CLUE reports," says Bach, who is a lawyer.
Federal law gives consumers the right to access a free copy of their CLUE report so they can correct errors.
Getting a copy of the CLUE report can help prospective home buyers learn what types of claims have been filed and check whether problems were appropriately addressed.
"Any information that relates to a house and its history is important," says J. Robert Hunter, director of insurance for the Consumer Federation of America (CFA), Washington, D.C. "A CLUE report offers more information, just like an inspection."
Home buyers can work with their realtor to obtain a copy of the CLUE report, which typically is available only to the policyholder or an insurance company.
When home buyers fail to check the CLUE report, they may be forced to pay higher premiums because previous claims indicated the property is prone to a problem that could occur again, such as flooding. In some cases, home buyers may even be unable to obtain property insurance, even if they have never personally filed a claim.
Hunter says consumers who contact CFA about CLUE often are surprised to learn the personal property report affects their premiums, especially when the higher premiums result from claims paid by a different company than their current insurer.
Once homeowners learn about CLUE, they may be hesitant to file a claim for losses if it means they'll pay higher premiums or even have difficulty selling their property in the future.
Both Hunter and Bach agree that proceeding carefully is wise. While consumers should file a claim for damages that they cannot afford to repair without help, they may want to avoid seeking reimbursement for expenses they can afford to pay themselves.
"Generally speaking, you're much better off having a high deductible, paying small claims out of pocket, and saving your insurance for when you really need it," Bach says.
If you file a claim and your rates go up, check with your state's insurance regulator to make sure the increase is fair. Many states limit the amount of premium increases for a specific period after a claim is filed.
Having a savings account reserved for emergencies can help homeowners feel comfortable with insurance policies that have a high deductible, which typically lowers premiums.
Hunter deposits the amount he saves on his high-deductible policy into an emergency savings account every time he pays a premium. He uses the account to pay for small claims out of pocket. When he has a large claim, he taps the account to pay the deductible.
Over the years, this practice has allowed Hunter to build a hefty savings balance while reducing the likelihood that a negative CLUE report will boost his insurance premiums.
The Fair Credit Reporting Act protects consumers by allowing them to get a free copy of their CLUE report every 12 months so they can dispute any errors in the report.
To get your free copy, contact LexisNexis at 866-312-8076 or online.
You're also entitled to a copy of the A-PLUS report from provider ISO, Jersey City, N.J. Contact ISO at 800-627-3487 or online.