Legislators Try to Get a CLUE About Loss Reports
Among the many topics addressed by the property/casualty insurance committee of the National Conference of Insurance Legislators (NCOIL) at its Feb. 26-29 meeting in San Antonio was the comprehensive loss underwriting exchange (CLUE) and its use in underwriting homeowners insurance.
Developed around 10 years ago by ChoicePoint at the request of insurance carriers, CLUE has generated heated discussion over the years as to its benefit for consumers. The NCOIL committee is considering what language, if any, to include in possible model legislation regarding the use of CLUE.
Jeff Skelton of ChoicePoint kicked off the discussion with an overview of what the database is and how it used.
“We sell this tool to the insurance industry for underwriting their business,” Skelton said. “It is in a general sense a repository of data about prior claims, or prior losses. We don’t tell carriers what to do with the information, we report the information to them and they make decisions using the tool.”
He stressed that CLUE reports contain no credit information and are in no way related to credit reports. Skelton also stressed that a CLUE report can only be accessed by agents, carriers or consumers who have given permission in writing for a report to be generated. In addition, carriers may not use it for marketing purposes or for anything other than an insurance transaction.
Skelton said that when carriers “request a report from us, we report only the last five years worth of information in the database …. Consequently two-thirds of consumers have no homeowners CLUE report because they haven’t filed any losses with the carrier in the last five years.”
He said four criteria will trigger the system. Those are:
1. A carrier has made a claims payment to the policyholder.
2. The policyholder files a claim and it is investigated, but the claim is denied.
3. The policyholder reports a potential loss but doesn’t file a claim. The carrier investigates and incurs a loss adjustment expense.
4. The carrier sets aside reserves and logs a loss reserve adjustment on their books after being contacted by a policyholder, even though a claim is not filed.
For a fee, consumers can request a report online at www.choicetrust.com. They may also contact ChoicePoint, Skelton said, if they “have been adversely impacted by the use of the information in the report.”
He noted that hypothetical questions from consumers to their insurance carriers such as, “‘I saw my neighbor’s tree fall and hit their shed, if that happened would I have coverage for that type of thing?'” should not be reported to the CLUE database. “There actually has to be some sort of loss,” Skelton said, for a report to be sent to the database.
Skelton’s hypothetical scenario generated a round of intense questioning from Representative Craig Eiland of Texas. “If the tree then falls and hits my shed, and I call and tell my insurance company and say, ‘Hey the tree hit my shed, is it covered?’ And they respond, ‘Yes, it would be if it meets some sort of threshold.’ Does that get reported?” Eiland asked.
“That probably would be reported, because now they’re going to go ahead and see if there’s some threshold,” Skelton answered. “There’s probably going to be some costs incurred to investigate to see what it costs to repair the shed.”
“Even if I don’t proceed any further?” Eiland asked.
“Well, you may at some point decide it’s not worth … ”
“Even if I don’t pursue it any further, is it still reported on the CLUE report?” Eiland continued.
“I think in some cases it could very well be, yes,” Skelton replied.
“Yes?” Eiland asked. “Or could very well be? You’ve got the computer program. It is reported?”
“I think you will find that some carriers will be more aggressive with consumers about making sure that they’re interested in pursuing the loss,” Skelton said.
“Calling for an inquiry is not the same as consumer seeking benefits under the policy,” Eiland noted as a final comment.
A representative from the San Antonio Board of Realtors, then testified that CLUE reports are in some cases obstacles to selling real estate. He noted that not only is it difficult to obtain the reports, the Texas real estate contract has no exit for lack of insurance or if the only insurance one can obtain is too costly. He also questioned the practice of recording as a negative the expense of sending an adjuster to investigate a loss even if no claim is filed. “The expense of sending an adjuster seems to be a normal business expense,” he said.
The committee agreed that use of the CLUE database warrants further consideration and decided to place the matter on the agenda for NCOIL’s summer meeting in Chicago.