http://moneycentral.msn.com/content/Insurance/Insureyourhome/P35345.asp

The Basics Insurers keep a secret history of your home
A huge database not only tracks claims, it also looks for risks -- which could cause dropped coverage and other nightmares for homeowners.

By Liz Pulliam Weston

You probably know that it’s not a good idea to make too many claims on your homeowners insurance policy because your insurer could drop you.

What you might not know is that making a claim could make selling your home more difficult down the road. What’s more, you could find your home’s value damaged or a sale jeopardized even if a previous owner, and not you, made a claim.

Insurers increasingly are using a huge industry database, called the Comprehensive Loss Underwriting Exchange or CLUE, to drop or deny coverage based on a home’s history of claims or damage reports.

Insurance companies are terrified of rising losses from water and mold damage. So a single report of water-related problems may be enough for insurers to shun your home.

Jan and Kevin Garder of Bremerton, Wash., discovered this the hard way. The Garders thought they were doing the right thing when they told their insurance company, State Farm, about some minor water damage caused by a rainstorm last year.

Consumers held hostage
The couple, who say they had been with their insurer for 30 years without filing a claim, ultimately decided not to file one this time, either.

That didn’t stop State Farm from dropping them as customers, they say. Not only that, but they say State Farm also shared the damage information with the CLUE database. When the Garders applied for coverage elsewhere, the other insurers cited State Farm’s damage report as the reason they wouldn’t write a policy, Jan Garder said.

“Until then, we didn’t know anything about the CLUE database,” she said. “We really didn’t have a clue.”

State Farm declined to comment on the Garders’ case, citing privacy concerns. Spokeswoman Lisa Wang said the insurer shares only claims information with CLUE, not damage reports.

But the company that operates CLUE, ChoicePoint of Alpharetta, Ga., said that the database collects damage reports as well as claims. The information stays in the database for up to five years, said James Lee, ChoicePoint’s chief marketing officer.

The Garders say they finally secured bare-bones fire coverage for about $1,000 a year, more than three times what they paid previously for full homeowners coverage.

What’s more, the problem is derailing their plans to sell their home. The Garders say they have been told by their real estate agent and others that they may have a tough time getting a good price for a home that’s already been rejected by many insurers.

“You are totally blackballed,” said Jan Garder, 49. “They should not be able to hold a consumer hostage like this.”

Insurance companies get aggressive
In previous years, insurers used the CLUE database in large part to watch for fraud and for consumers who had a history of filing numerous claims.

After losing billions of dollars on homeowners insurance in recent years, however, insurance companies have become more aggressive about screening for other risks -- including damaged homes that could spawn future claims.

State Farm has been among the most aggressive in weeding out unwanted risks. The nation’s largest property insurer has dropped thousands of policyholders from coast to coast and stopped writing homeowners insurance in several states.

So far, insurers’ increased use of the CLUE database has not caused serious problems for the booming real estate industry, said George Tribble, a member of the National Association of Mortgage Brokers’ board of directors.

But Tribble said he has heard a number of anecdotal reports of residential sales falling through at the last minute because of CLUE-related problems in securing insurance. He fears the problem could get worse if insurers begin to shy away from homes that have had even minor damage.

“Right now, it’s still a pretty isolated problem,” Tribble said, “but that could change if they (insurers) continue to do this. … If you’re not able to get insurance, you’re not able to close the deal.”

Tribble thinks it’s particularly unfair that a home could be blackballed because of one claim, let alone a single report of damage that didn’t lead to a claim.

“Insurance companies want to keep their costs down, which is understandable,” Tribble said, “but this is what you have insurance for -- to cover you for accidents.”

The insurance industry is notorious for its manic-depressive cycles. In profitable years, companies will slash premiums, boost coverage and take on big risks in hopes of gaining market share. When those risks start costing real money, the companies sound the full retreat -- hiking premiums, dropping customers and shunning risk.

What’s notable about their most recent mood swing was how quickly it happened, spurred in large part by last year’s losses and the massive increase in mold-related claims, especially in Texas and California.

How to protect yourself
While you can’t do much about insurers’ overreactions, you can do something to protect yourself in this particularly difficult time. Among them:

Keep your home in good repair. A solid, watertight roof, good plumbing and a decent paint job can protect your home from various water disasters -- the kind of damage that’s scaring insurers the most these days. It’s a good idea to regularly check the hoses on your clothes- and dish-washing machines, since cracked or burst hoses often lead to serious water damage.

Keep your deductible high. Pay for smaller expenses out of your own pocket. Homeowners insurance should be reserved for the big disasters, not the little problems you can easily pay for yourself.

Think twice about water-related claims. This is especially true if you plan to sell within a few years. You could be better off paying to repair the problem yourself rather having your home be branded as high risk.

Don’t tell your insurer about problems unless you’re sure you’ll file a claim. This last piece of advice is unfortunate, because insurers and insurance agents can be a decent source of counsel on whether it’s worth filing a claim. Since any damage you report could get passed on to the CLUE database, however, it’s smart now to err on the side of caution.

Consider getting a copy of your CLUE report. You're entitled to a free copy of your home's CLUE report every year or if you've been denied insurance. You have a right under federal law to dispute any erroneous information on the report. To get a copy, contact ChoicePoint.