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June 6, 2002
"Uninsurable Homes"
Host: Health insurance companies do it...auto insurance companies do it...now, home insurers are doing it too -- pooling information to keep track of how many claims are made on a specific home. They're using that data to set rates and, in some cases, deny coverage. In this week's edition of "The Road To Riches," personal finance expert Jordan Goodman explains how they do it, and why.
You are aware that credit granters pool information with credit bureaus about your credit habits to create a credit report that determines how much credit you get. Similarly, medical companies share information on your medical history that is used by health and life insurance companies to determine if you get insurance, and at what premium rate.
But you may not be aware that home insurance companies are now keeping files on how many claims have been filed on a particular home. Even if your personal record is completely clean from past homes, you may be rejected for homeowner’s coverage if the house you are buying, or moving into, has a record of even a few claims. The home insurance business had about $9 billion in claims last year, a record that the industry is working aggressively not to repeat. In particular, if your home has had several claims for water, storm damage or burglary, it may be almost impossible to get homeowner’s insurance. There has also been a big outbreak of mold claims throughout the country, which will also cause your policy to be canceled, or not renewed, if you report water or mold damage. One of the most urgent problems this creates is when a home is being sold. The seller of the home will likely not mention that he has filed several claims in the last few years. So many buyers only find out when they have agreed to buy the home, and get denied for mortgages when their insurance applications are rejected because the house has had too many claims on it. Therefore, the lack of insurance is starting to have a major effect on the ability of real estate to change hands.- What can you do to protect yourself against an insurance policy
cancellation?
- First, don’t file a claim unless it is absolutely necessary. Your policy can be cancelled if you have as few as 3 claims in 3 years, for any reason at all -- even if you are completely not at fault.
- Second, get a copy of your house’s insurance claims record. The industry keeps a database called CLUE, which stands for Comprehensive Loss Underwriting Exchange, which tracks over 90 percent of all homeowner claims made in the last 5 years in America. You can get a copy through your insurance agent, realtor, or on the Internet for about $10 to $15. If you are buying a house, you should ask the seller for the CLUE report, because you don’t have a legal right to get one until you own title to the house.
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