Insurance companies use numerous tools and resources to evaluate potential customers and set premiums. This article explains several of these resources and the evaluation processes insurance companies use. It also includes a few tips on how to ensure your information is accurate and keep your premiums in line.
1. C.L.U.E. (Comprehensive Loss Underwriting Exchange)
CLUE is a national database that keeps track of insurance claims from all insurance companies. This data is cross-referenced to individual names, vehicle identification numbers, addresses, and more. Nearly all insurance companies subscribe to this service. Essentially, if you have had a claim, it is in this database.
Many people feel that tracking this level of information about them violates their right to privacy. It is important to realize, however, that fraud is a significant problem in our society contributing a noticeable increase in everyone’s premiums. CLUE has proven to be an effective ‘fraud catcher’ and it is hoped that a long-range reduction in premiums will result from its use.
2. Credit Reports & Credit Scores
The three Credit Bureaus, Experian, Equifax, and Trans Union, maintain credit histories for every individual that includes credit information and payment history for each lender with which he has done business. Creditors report this information to the credit bureaus on a regular basis. From this information, ‘credit scores,’ which rate an individual’s creditworthiness, are developed by the credit bureaus.
Many people are still surprised to find that their credit history will be used to determine their insurability for homeowners and auto insurance. About 50% of insurance companies use this information when deciding whom to insure.
3. Motor Vehicle Reports
All insurance companies will check your motor vehicle report to confirm accidents and tickets. In addition, more and more states are sharing data so that an individual motor vehicle report will include a driver’s history in almost every state.
4. Catastrophic Losses
Homeowner claims attributed to a large storm are often classified with a Catastrophic Loss Number, or ‘Cat Loss Number’. Most companies will not hold this type of claim against you. Some local hail and windstorms are rated as Cat Losses. Ask your agent to confirm your claims with Cat Loss numbers.
5. Auto Claim History
Insurance companies will review your driving record for the past three to four years for tickets, accidents, and claims. This is a “catch 22” situation. Policies provide more and more coverage and benefits, but you are penalized if you use them too often. ALL claims are tracked, including:
Towing and emergency road services
Windshield repairs (repairing rock chips)
Not at-fault accidents (when your insurance company pays)
6. Homeowner Claim History
Insurance companies have several rating categories such as “No Losses in Six Years,”
“One Loss in Six Years,” “No Losses in Three Years,” “One Loss in Three Years,” etc. As a rule of thumb, two or more claims in the past three to four years make you undesirable to insurance companies and can cause non-renewal or cancellation.
Tips on what you can do:
Check your records for potential errors
From time to time, errors may be found in the various databases in which personal information is stored. If this information is being used to deny you insurance, increase your rates, or to cancel your policy, ask to see a copy of the report. Errors can be corrected. For example, all accidents show up on your motor vehicle report, even those that were not your fault. CLUE tracks your car by the vehicle identification number (VIN), so if you purchased a used car, its claim history is now connected to you.
Avoid making small claims
Since every claim is counted, we educate our clients about larger deductibles and advise them not to submit small claims. Remember, insurance should be used for catastrophic or large losses, not for maintenance of your home and cars.
Seek the advice of your agent
Loring & Company is an independent insurance agency, willing to advise and counsel you regarding coverages and claims.
Before you submit any claim, seek the advice of your agent. Collecting a couple hundred dollars from a claim now could cost you thousands in additional premiums later.
Insurance companies are looking for the best customers to insure and will provide the best coverage and rates for those clients. Your record does not have to be perfect, but poor driving records, poor credit, and frequency of claims will make premiums higher.