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2/15/2004

Don’t ask, don’t tell

By Tony Kindelspire
The Daily Times-Call

LONGMONT — Eric Blackhurst has first-hand knowledge of how inquiries to an insurance agent can lead to increased homeowner’s premiums.

The real estate broker, who has lived in Estes Park since 1985, said he had sought to upgrade his homeowner’s insurance a few years ago but was told his company was no longer writing policies in Colorado. When he went to shop around for a new company, he said he made a startling discovery.

“I had never filed a claim, never been paid any money,” Blackhurst said. “So now I go to get insurance with a new company and I find that I am high-risk because I had, quote-unquote, filed two claims in the past three years.”

When he finally found a company that would insure him, he said, his deductible skyrocketed, his premium had doubled and he was required to replace his roof at a cost of $7,000.

“I was clueless,” Blackhurst said. “I had followed the advice that was given to me by my local insurance representative.

“He always told me, ‘If you ever have a problem, if you ever have a question, call me.’”

So Blackhurst did.

Though he never filed a claim that involved reimbursement from his insurance agency, there were two instances where he had contacted his agent to ask questions — one time about minor roof damage and the other about minor flooding in his basement.


This session, the Legislature has considered three bills addressing how homeowner’s insurance companies conduct their business.

All garnered the support of the Colorado Association of Realtors and the Colorado Public Interest Research Group, organizations whose directors cannot remember teaming up on any issue before.

“It was literally one of our members, who works with the Colorado Association of Realtors, that brought this to our attention,” said Rex Wilmouth, CoPIRG’s state director.

One of the bills has died in committee; the two remaining would impose new restrictions on the way homeowner’s insurance companies conduct their business.

“The real focus of this, and I think it sometimes tends to get lost in the details — which can happen at the Capitol — but our primary focus is people are having a hard time getting insurance,” said Bob Golden, CAR’s chief executive officer.

The insurance industry disputes that statement, saying its procedures negatively impact only a miniscule amount of people. But backers of the bills say the problem is more widespread than the insurance industry claims.

“I’ve heard that, and I guess my concern is, how many people have to lose or be denied coverage for it to be an issue,” said Golden. “On the surface, it might appear to be a small percentage, but these are only the people that we’ve been hearing from.”

One of the most contentious reforms was the primary feature of Senate Bill 141, which has been was killed. It would have prohibited insurance companies from using inquiries made about coverage to increase homeowner’s premiums.

In Blackhurst’s case, records of his conversations were apparently entered into Blackhurst’s “CLUE” report. CLUE, a nationwide database used by insurance companies, stands for Comprehensive Loss Underwriting Experience.

Industry spokespeople say companies use the CLUE database when judging a potential policy risk.

One spokesman said that the CLUE reports can be a reliable predictor of future losses — and not just insured losses.

“CLUE reports are to a home what driving records are to an individual motorist,” said Joseph Annotti, vice president of public affairs for the Property Casualty Insurers Association of America. “In the case of driving records, if I’ve had two speeding tickets and a DUI, my insurance company hasn’t paid out a dime in claims.

“But if that’s my driving record, and you have a perfect driving record, it’s easy to see that you would be a better risk.”

Annotti said he doesn’t believe “inquiries” should be placed in a CLUE report. But it’s when an “inquiry” crosses over to “reporting a loss” that the issue becomes controversial.

“If you call your agent and say, ‘Hey, Mary, a pipe in the basement burst. Am I covered for that?’ That’s a loss report — you’ve triggered the company’s responsibility under the insurance contract.

“Basically, what a CLUE report is doing is it’s trying to send up a red flag to a company that says you should take a closer look at this property.”

Mike Benschneider, who lobbies the Colorado State Legislature on behalf of Farmer’s Insurance, said his company, in “most cases,” would not count an inquiry as a claim.

“If you’re going to use a CLUE report, than the same circumstances should apply as what happens with your credit report — you get a note from the credit bureau,” said Blackhurst. “If I had an indication that I would have had a negative entry in my CLUE report, which I had no idea what that even was, I certainly would have called my broker to find out what the heck was going on. But I had no idea.”


House Bill 1292, co-sponsored by State Sen. Bob Hagedorn and Rep. Lauri Clapp, a Democrat and Republican respectively, from Arapahoe County, addresses three issues: One is making sure consumers know where they can go to obtain a free copy of their CLUE report; the second is to prohibit insurance companies from using a consumer’s “credit score” as the sole criterion for accepting, denying or renewing coverage; and third, the proposed legislation addresses the issue of “binders” — a temporary or preliminary agreement an insurance company issues at the time of a home sale that stands until a final policy can be written.

The Clapp-Hagehorn bill would prevent insurance companies from canceling or refusing to offer a policy to a customer after they have issued that customer a binder, provided the customer did not provide them with any false information and has paid the premium.

The way the law is currently written, an insurance company has up to 60 days from the time of issuing a binder to decide whether it will write a policy. Issuing the binder does not commit it to writing a policy, said Benschneider.

“What that (proposal) is going to do is cause insurance companies to say, ‘OK, we’re not going to give you a binder until all our inspections are done,’” he said, adding that he believes closings would be delayed as a result. “That’s why we believe it’s anti-consumer.”

Proponents of the bill disagree. “It’s like a promise to insure, but they can back out of that right now,” said Barbara Koelzer, a government affairs director that acts on behalf of the Longmont Association of Realtors and three other associations in the area. “And (60 days) is way long — even if we’re not completely able to eliminate that (time period), with today’s technology it doesn’t make sense to give the companies that long.”

The Clapp-Hagedorn bill is scheduled to go before committee this week.

The use of credit scores is another contentious issue.

“I don’t think people are aware that their credit score is being used by insurance companies to determine whether they are policy-eligible,” said Koelzer. “It should not be considered. There is no data that shows that information is relevant. Statistically, there is no correlation.”

“Our position is that credit-based insurance scores are a remarkably accurate predictor of future credit risk,” Annotti countered.


Tuesday, the same day that HB 1292 is scheduled to come up before committee, is Realtor’s Day at the Capitol, with more than 200 members of the real estate community on hand to meet and greet the legislators.

The third bill dealing with homeowner’s insurance, HB 1236, is still pending.

In the meantime, homeowners should protect themselves. Experts say you should check the deductible on your insurance. If it’s low — $500 or under, say — have it bumped up.

And, Annotti reiterates, asking a simple question of your agent should not be strike against you or your property.

“If inquiries are going in (to your CLUE report), and you suspect they are, the easiest way to find that out is to get a copy of your CLUE report, and you can do that for free,” he said.

The two Web sites run by Choice Trust, the company that manages the CLUE database, are www.consumerdisclosure.com and www.choicetrust.com. The latter site charges a nominal fee for obtaining the report.

Consumers also should be aware that red flags can be tagged to both homeowners and individual pieces of property.

“If you’re going to sell your home, you should have a copy of that CLUE report up front,” said Annotti, adding that you also should try to have your real estate broker obtain one on a property you’re considering buying.


Like most hot-button issues, those on both sides believe that they are in the right. Some real estate people even will use the word “crisis” in describing the insurance situation. Those in the insurance industry, however, say the fuss is all much ado about nothing.

“The perception that people are losing their insurance left and right is just not accurate; it’s more an anecdotal thing than anything else,” said Carole Walker, executive director of the Rocky Mountain Insurance Information Association. “This feeling that it effects closings — that kind of flies in the face of a booming real estate market.”

But Wilmouth said there is enough evidence of a problem out there to convince him that CoPIRG should be involved.

“The insurance companies are saying this isn’t happening, but the Realtors are hearing from their constituents, we’re hearing from our constituents — people trying to buy a house — that this is happening,” Wilmouth said. “If it wasn’t happening, why are so many states across the country passing legislation to deal with this issue?”

Tony Kindelspire can be reached at 303-776-2244, Ext. 291, or by e-mail at tkindelspire@times-call.com.