The use of loss history reports on individual dwellings is an important and necessary tool that insurers need to help them underwrite homeowners’ policies in Nevada. That’s the message delivered by the Property Casualty Insurers Association of America (PCI) at a public meeting of the Insurance Commissioner’s Property Casualty Advisory Committee recently.
“Insurers must have good information if they are going to properly underwrite a risk,” said Sam Sorich, PCI’s Western Region vice president, who participated in a panel that provided an overview on the use of loss reports by insurers. “Prior loss information is a critical piece of the underwriting puzzle and databases such as ‘CLUE’ or ‘A Plus’ are essential tools that help insurers quickly determine a dwelling’s history of losses and more accurately assess the potential for future claims.”
Sorich said there are several misperceptions about the use of loss history reports and he offered the following information to the committee.
· Loss history reports are accurate and relevant underwriting tools. With increasing restrictions being placed on insurers’ ability to evaluate risks, it is critical that insurers be permitted to obtain prior loss history reports.
· Loss history reports are regulated by the federal Fair Credit Reporting Act (FCRA), as well as various state versions of the Act. The Act assures that, upon making an adverse decision on the policy based on a consumer report (including loss histories), insurers disclose the source of information used. The Act also allows consumers to dispute any information on the report.
· Loss history reports are used to evaluate new risks – they are not used to find reasons to non-renew or reject policies. Insurers aren’t in business to reject policies – instead they seek to write profitable business. But, in order to assure that business in profitable, insurers must be able to accurately assess and rate each risk. Loss history reports are one tool used to evaluate risks.
· Loss history reports help insurers write business. The reports do not cause policies to be declined by insurers – but prior losses may result in policy declinations where those losses indicate that the risk may be too great for the rate charged.
· Insurers have used loss history reports for several years, and insurance applicants have always been entitled to know what information is revealed on a prior loss report. Loss history reports are not from a “new” or “secret” database as some have alleged.
· When evaluating applications for homeowners’ coverage, insurers may consider the loss history of the dwelling, as well as the applicant. Claims relevant to the dwelling may be a critical determinate of future risk of loss – even if those claims occurred prior to the applicant’s purchase of the house. For example, with skyrocketing mold claims, insurers may need to consider prior water losses when evaluating the potential for future claims. Unfortunately, insurers may take an adverse action on an application without requesting proof that prior problems with the dwelling have been resolved, or the potential for future loss has been mitigated. This is because, by law, insurers have limited time to evaluate new business applications (typically 60 days) and often lack sufficient time for further investigation.
· Loss history reports include only information reported by insurers as a claim. Insurers do not report general policy inquiries as “claims.” It is possible, however, that claims are closed without payment. There are many reasons for this: losses determined not covered by the contract; losses valued under the policy deductible; losses determined to be fraudulent, etc. In all of these situations, however, damage has been reported by the policyholder and may be relevant to the future insurability of the risk. Some have alleged that insurers report coverage inquiries as claims, even where a policyholder later decides not to pursue the claim. This is a tough call for insurers. If a policyholder reports damage, the insurer has an obligation to open a claim file. To delay doing so could lead to further damage (of un-repaired property), could invite fraud, and could violate state fair trade laws.
· Prior loss history reports prevent application fraud. All too often, applicants fail to disclose prior losses on the application for insurance. Prior loss history reports assure that insurers will receive accurate information.
PCI member companies write nearly 40 percent of all lines of property casualty insurance in Nevada, including about 34 percent of the homeowners business in the state.
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