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Comment by Gary on July 23, 2008 at 12:50pm

What You Need To Know Before You Sign on the Dotted Line and Before You Submit a Claim …These Days What’s Not In The Policy Is As Important As What Is.



Buying home insurance today is much different now than it used to be. You need to understand how because it effects you personally. The steep stock market decline forced insurance companies to reevaluate their positions in the marketplace.
So what’s different now?
The answer lies in technology. Vast amounts of digitalized data collected on you from multiple sources lay waiting in huge databases.
This report is about that personal data and how it affects you.



Why would I share this insider knowledge? Because it’s good for my business as it is for you. I want to let you in on the knowledge I have accumulated as an insurance agent for two decades. Agents see both sides of the transaction. I deal with insurance companies and consumers like you who depend 100% on me to get it right—before and after a claim.
Credit Scores Aren’t Used Just For Loans
I don’t need to tell you the importance of knowing what’s in your credit file. Banks use your credit file to size you up. If you’ve ever missed an installment payment, a credit card bill, a mortgage payment, etc. your credit file is notified and red-flagged. Suddenly any company that extends credit retrieves this data. Good or bad, it gets run through proprietary software programs that “calculate” the risk of doing business with you.
Insurance companies are no different.
The first question I always get is “What does my credit have to do with me getting insurance?” You’re not alone. It’s a question state legislatures are lately asking too. For the time being, however, credit scoring is here to stay.
The bottom line is that insurance actuaries (the number crunchers with the pencil protectors in their pockets) compare “credit scores” against “claim histories” of its policyholders. This is the grand merger of the data collected by the big credit agencies with the insurance industry. Big Brothers comparing notes behind your back.
And what do they see? In fact it’s quite interesting. The “numbers” show a correlation (careful, not a cause) between lower credit scores and a higher than normal claim frequency. This doesn’t mean that if you have a low credit score you will likely submit a claim; nor does it mean that if you have a magnificently high credit score you are immune from suffering a loss. I’ve to plenty of real life anecdotes to back this up.
Understand this: an insurance company sets rates and makes a profit (or loses its shirt) based on its ability to predict the future. They are gamblers. The company bets its capital for a relatively small fee (your premium) that you will not submit a claim costing hundreds of thousands of dollars.
In return, you trade your premium dollars for the piece of mind on not suffering financially if your house burns down or total your car. Some like to call this “sleep insurance.”
This is how the game works.
When you deal with the large numbers of dollars and customers throughout the industry, the ability to predict losses is phenomenal. And it’s getting better. Frankly, it’s scary. The insurance companies are gambling less and hedging more, placing money on sure bets, that is, applicants with high credit scores. The result? Lots of “innocent” policyholders are being turned down for new policies or blindsided with a non-renewal letters. Their crimes?
The policyholder asked the insurance company to fulfill its obligation!
That’s right. I see it everyday. Let me tell you a story. A worried homeowner called a few months back. His insurance company sent him the non-renewal notice but he didn’t do anything wrong. He and his wife paid their homeowner premium faithfully—year after year after year. In 2002 a pipe burst. Then two trees stuck his deck in a storm. Then this past winter, a sudden thaw after heavy snow and freezing temperatures caused water to seep in the house ruining the wallpaper. A few thousand bucks for each claim. So what, right? Wrong.
The homeowner has been paying his premium for twenty years. Now after two claims, two events beyond his control, the insurance company is canceling? What’s this all about? Not only did the insured always pay the premium, he paid the $500 deductible each time. Isn’t that what the insurance contract states? You pay the premium, and the insurance company pays the loss, less the deductible.
Where does it say in the contract you can’t put in claims?
I’ve read insurance contracts from start to finish. Nowhere in the contract does it say that if the policyholder submits two claims the insurance company isn’t waiting around to pay a third claim. But, in effect, this is what’s happening now. It’s the merger of financial data and loss data refining the prediction process—increasing the house’s chances that it keeps more of your money.
What do we know so far?
First, the industry will price your coverage or reject you outright based on your “credit score.”
Secondly, the insurance contract written by the insurance industry says nothing about how many claims will be paid before a non-renewal notice is issued.
Beyond two claims, though, and the consumer is on thin ice.
What You Can Do To Protect Yourself Now
My first recommendation is to raise your homeowner deductible to that option closest to 1% of the coverage on the house. For instance, if your home is insured for $480,000, go for a $5,000 deductible. If you have a $2,000,000 home, elect the $25,000 deductible. Why do this?
You’ll save money and lots of it. Personally, when I increased my deductible on my $500,000 house from $500 to $5,000 I saved $739! That’s a lot of money, especially year after year. The higher deductible takes away the temptation to submit nuisance or what I like to call, “maintenance” claims.
Look at it another way. In my case, by not going with the higher deductible, I’m paying $739 for only $4,500 of coverage. Take my word for it. The higher the deductible, the better off you are in the long run. It’s been my experience that only about 3% of homeowners suffer even one claim. The overwhelming majority of policyholders never, never put in a claim.
The insurance industry knows this. They generate much more premium when you carry a low deductible. The few unlucky policyholders who put in a claim get kicked out and the gravy train continues for the insurance company.
Preventative Maintenance
What you can do is order a personal C.L.U.E. report. It costs $5 and can be ordered through our office. Call Angelique at 914-666-8001. You sign an acknowledgement form and we can get it over the internet in two minutes. We’ll be happy to go over it with you.
This report reveals any and all claim history on your current residence; it describes the event and how much was paid out. Even if “0” dollars was paid, the record is still there.
And if you are looking at buying another home, definitely ask the seller to provide you a copy of their C.L.U.E. report on the property. Just in case. If the property has a handful of claims, you could be buying more than you bargained for!
A history of water damage claims might raise your premium 300% or more!
I can’t get it all in one report, but I trust you found this information helpful.
Now what?
The last two pages include a sample CLUE report and an order form for a personal report on your own home. I’d like you to see what we see every day. I’ve blacked out the personal information on the report. This particular case is a good example of how a few small claims caused this insured to lose his coverage. Fortunately, I was able to replace his coverage in a “standard” company. Otherwise, his premium would easily have exceeded $4,000 for a 2,000 square foot home.
Call my office at 602-481-0161 if you’d like to order a personal CLUE report or discuss this topic or any other concerns you have. You can always email me at ghanson@proinsgroup.com
We’re here to help you make spend your premium dollars wisely. Call Professional Insurance Strategies today…before a loss.