2005
Insurance Reference Manual
Personal Insurance Federation of California Insurance Reference Book
PROPERTY INSURANCE USE OF CLAIMS HISTORY IN UNDERWRITING & RATING
Insurance underwriters and actuaries use real world loss data from large, statistically valid groups of people to set rating categories and rates. In addition, insurers use computer models and other actuarially valid tools to assess the likelihood and extent of a potential loss.
Insurers also use information about the property itself to make underwriting and rating decisions. Property claims history reports are collected and maintained in databases by at least two companies - ChoicePoint and the Insurance Services Office (ISO). The Comprehensive Loss Underwriting Exchange (CLUE) is a shared repository (database) maintained by ChoicePoint that contains information about claims that have been filed on properties in the U.S. Consumers can get copies of their CLUE (property claims history) reports for $15 on the Internet at www.choicetrust.com.
Automobile-Property Loss Underwriting Service (A-PLUS) is a comprehensive database maintained by ISO containing property, liability and automobile claims data. ChoicePoint and ISO are considered to be consumer reporting agencies under the Federal Credit Reporting Act. Insurers are very cautious in underwriting a property that has a history of claims, or an applicant who has filed claims. Experience demonstrates that properties with a history of claims are likely to have more such claims filed in the future, or may have propensity for further development of an existing exposure.
Critics of insurers' use of prior loss information have stated that it is not fair for an insurer to make underwriting and rating determinations based on losses to the property that occurred before the current owner purchased the property, because those losses were not the "fault" of the homeowners insurance applicant.
First, the homeowners insurance system is not fault-based. Rather, its very foundation is to fairly price properties based on the risk characteristics of that property. Actuarial science has determined that a history of past losses is indicative of a propensity toward future losses to that property. Insurers are not using claims databases to "punish" customers. Insurers want to attract new customers and retain good customers for a long time, just like any business.
Second, if an insurer sees that a claim had been filed, the insurer wants to be sure that any damage was properly repaired. No one involved in the sale of a home - the buyer, seller, real estate agent, or insurer - wants any unpleasant surprises. The use of prior loss information databases enhances the amount of loss information available to all.
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