Most people think they have a fairly good understanding of how insurance companies decide whether or not to insure new applicants. When you apply for a new policy, you provide personal information and pertinent details about your property or vehicle, and the company decides if you’re worth insuring based on the level of risk associated with your demographic—right?
The truth is, this answer is both right and wrong. While the information you provide to an insurance company is vitally important, it is the information the company obtains from other insurance companies that can make or break your application.
Most homeowner and automobile insurance companies in the United States and Canada participate in at least one data collection system that pools the claims information of all their insureds. They can access the claims databases—of which CLUE, A-Plus, and AutoPlus are the largest—any time a new potential insured submits an application. These systems track multiple claim types from hundreds of participating insurers, so underwriters use them in calculating the risk associated with any one specific applicant based on their individual claims history, not just the claims of the broader pool. This means that if you decided to switch insurance companies, the claims you submitted on your previous policy are sure to follow you (find out Why It's Not a Good Idea to Switch Insurance Companies Every Six Months).
While the benefit of these systems is understandable from an insurer’s point of view, they can have some serious drawbacks for consumers. Understanding how these databases work and what insurance companies do with your claims information can go a long way to ensuring that you don’t pay more than you should for your policy, or worse, end up unnecessarily uninsured.
The Comprehensive Loss Underwriting Exchange, or CLUE, is the most well-known claims database. Operated and administered by data giant LexisNexis, the CLUE report has become the industry standard for claims history reporting. Of the insurance companies providing homeowners insurance in the U.S, about 600 (90 percent) contribute to the CLUE database. The vast majority of auto insurers also participate. This means that, with few exceptions, your claims have been entered into the CLUE database, regardless of where you’ve placed your business in the past.
In addition, the CLUE database provides claims information for the past seven years. If you haven’t had a claim during that period, you may not currently have a CLUE report. Homeowners policies, in particular, typically do not have very active claims histories, so many homeowners do not have current CLUE reports. Auto policies tend to see higher claims rates, but the CLUE database provides separate reports for auto and property claims histories.
If you have made a claim within the past seven years and have applied for a new insurance policy, the company can pull your CLUE report and see the date of the claim, the details of the damage, and the amount paid to you.
Like the CLUE system, the Automated Property Loss Underwriting System (A-PLUS) database is another claims reporting system American insurance companies use to track the collective histories of all their insureds. Administered by Verisk Analytics’ Insurance Services Office, this database has over 1,200 participating insurers, but it tends to be less well known than its LexisNexis-powered competitor. In fact, claims reports tend to be referred to as CLUE reports, regardless of what agency provides them.
Like the CLUE report, the A-PLUS claims reporting system provides claims histories going back seven years for both homeowner and auto policies. These reports include the date and details of any claims as well as the amount paid by the insurer. Both types also list any filed claims the insurer rejects. So even if you file a claim that your insurance company denies, your claims report will still include this information.
The AutoPlus claims reporting database is the Canadian equivalent of the CLUE and A-PLUS systems in the United States. However, unlike its American counterparts, the AutoPlus database catalogues only personal automobile policy claims histories and does not include homeowners policy records. This system allows Canadian auto insurers to access applicants’ auto claims histories using only a license or policy number.
Canada’s largest independent information technology firm, the CGI Group, handles the AutoPlus database. This system includes more than 60 million policy records, with more than 40 million claim entries spanning 25 years, thereby making it an important tool for any Canadian auto insurer.
Your Insurance Score
So what do CLUE, A-PLUS, and AutoPlus reports mean for you? As it turns out, they could mean the difference between obtaining quality coverage and paying a serious premium for the most basic policy.
In the United States, insurers use your claims history in combination with your personal credit rating to determine your insurance score. Studies have shown that people with lower credit scores are statistically riskier for insurance companies, so new applicants’ credit scores are used to weed out riskier candidates (read How Your Credit Score Affects Your Insurance Rates to find out more on this topic). What this means for consumers is that, even if you have a clean claims history, a track record of late credit card payments or loan defaults could make it difficult to secure coverage.
The Price of Ignorance
Most people know that it is best to keep your credit report sparkling, but most don’t know about the importance of maintaining a similarly stellar claims report. In fact, the first time most consumers even learn of their CLUE report or insurance score is when they are declined insurance coverage.
Keeping tabs on your CLUE report can save you a lot of worry and, potentially, a bundle of cash. Errors in documentation or over-reporting of unfiled claims can lead to an inaccurate or damaging CLUE report. If you make an inquiry about coverage but do not submit a claim, for example, your insurance company may still log this interaction with its chosen claims reporting agency, which could result in an erroneous claim on your report. Whenever an insured makes an inquiry about coverage for a potential claim, insurance companies must file a report of the issue for record keeping purposes, even if no actual claim is ever filed. Down the road, a new insurer that pulls this CLUE report may decline the insured coverage because of an erroneously inflated number of claims. Similarly, incorrect documentation of the amount paid can make an insured appear to be a bigger risk. A claim for $10,000 is a much bigger worry to an insurance company than one for $1,000.
The best way to prevent this type of error is to keep tabs on your own CLUE report even when you are not shopping for a new policy. You can find instructions to request your claims history report on the respective websites of LexisNexis, Verisk, and CGI. Make a habit of pulling your report once a year to ensure all the details are accurate. It may just save you time and money in the future.