Homeowners Losing Protection Due To Practice Of Insurance Blacklisting
Posted February 26, 2003
CARY, N.C. — For many people, their biggest investment is their home.
That investment is protected with homeowners insurance; however, a growing number of homeowners are finding that protection being taken away.
The North Carolina Department of Insurance said it gets 15 to 20 calls every week from people who have been dropped by their insurance companies.
If a home is flooded, ripped apart in a hurricane or ravaged by fire, a homeowner would call their insurance company to take care of it.
So what about repairs that are not so devastating, such as lightning zapping a computer, minor roof damage, broken windows or leaky pipes?
Bill and Lynn Seyler of Cary learned the hard way and have a warning for other homeowners: do not be too quick to call your insurance company.
After paying premiums for almost 20 years, the Seylers' insurance company canceled their coverage.
"I said they can't do that. I know they can't do that. I said not only is it not fair, it's not right," Bill Seyler said.
So why were the Seylers dropped? Too many claims.
Over the last five years, the Seylers filed three leak-related claims totalling less than $6,000. They also called to report a leak that never turned into a claim. Now they cannot find affordable coverage.
The Seylers' insurance bill went from $396 a year to $1,100 a year. That amount only insures the structure -- nothing inside their home is covered.
"You feel like you should get a storage shed or something for your furniture and treasures just because you can't afford to replace them," Lynn Seyler said.
One reason the Seylers cannot get affordable insurance is a little-known database called
Comprehensive Loss Underwriting Exchange
CLUE was created to help insurance companies detect fraud. Although many insurers use it to blacklist customers like the Seylers, CLUE lists every claim a customer makes and every call even if it never turns into a claim.
One entry shows a call by the Seylers that did not become a claim. The cost of repairs ran less than their deductible and the insurance company paid nothing -- but still reported it to CLUE. The database goes back five years and insurance companies can access the information and use it to drop or deny coverage.
"I think it's a sad state of affairs when you have paid that premium for 12 months, 12 years -- or however long you've paid it -- and all of a sudden they say 'We don't want you,'" said Jim Long, North Carolina's insurance commissioner. "That is an unfair way to treat the customers. There's nothing I can do to stop them from doing that."
Long said it is perfectly legal for companies to track claims and drop customers they do not want to insure. He does question giving customers a "black mark" for calls that do not turn into claims.
"I don't think they should be doing it. I'll tell you that straight up, I don't think they should be doing it," Long said.
Bottom line: The insurance industry said customers pay premiums to protect them for emergencies -- not home maintenance. They said filing several minor claims will get a customer dropped quicker than filing one costly claim.
How can insurance customers stay off the blacklist? As the Seylers now know, only file claims for catastrophic losses -- damage so costly you cannot afford the repairs.
Another way to lower the risk of being dropped is for policyholders to raise the deductable to the highest level they can afford.
"Really make sure that it's worth getting involved with the insurance, because if something bigger comes along, you don't have anything to fall back on," Lynn Seyler said.
As for the Seylers, it will be another 2½ years before they get off the blacklist.
Long is pushing legislation that would create a high-risk pool for for people in their position -- much like the one now available to for high-risk drivers.