Home Buyers to Gain Access to Claims Records

People trying to buy homeowner policies would be guaranteed the right to review their credit scores and past insurance claims records and to correct errors in insurance company files under an order that state Insurance Commissioner John Garamendi plans to issue next month.

In an interview Tuesday, Garamendi said he will promulgate the orders as part of a Homeowners Bill of Rights designed to ease the difficulty of obtaining and renewing homeowners insurance in California.

State Farm, the largest insurance seller in the state with about 20% of the market, has a moratorium on selling homeowners policies to new customers, and other carriers have tightened their criteria for approving policies.

“It’s getting to be that obtaining a mortgage is easier than buying the insurance,” Garamendi said.

He added that he has asked State Farm to provide him information justifying its moratorium.

Bill Sirola, a spokesman for State Farm, said the company had little choice but to cut back on sales of policies because of losses on claims. The company’s underwriting losses on homeowner policies nearly doubled to $236 million a year between 2000 and 2001, the last year for which figures are available, Sirola said.

Under current insurance procedures, companies can use not only an applicant’s claims but claims made by prior owners of a property going back five years to justify refusal to sell a policy.

When properties are sold, the seller can obtain insurance records and pass them on to buyers, giving the buyer a glimpse of possible problems in being able to obtain insurance for the homes.

Records of past claims are generally gathered for insurance companies by computer services, of which the largest is CLUE (the Comprehensive Loss Underwriting Exchange) operated by the Georgia-based company ChoicePoint.

But many buyers of property don’t know that claims filed on a house by a previous owner can keep them from being able to obtain insurance, Garamendi noted. So they don’t press sellers for the information, he said.

Under the orders he plans to issue, insurers would transmit the information to the would-be customers, and homeowners would be allowed to correct the information used by the companies if they were able to show it was false.

Although some parts of Garamendi’s proposed Homeowners Bill of Rights would require legislation, the insurance commissioner said he has power to order that the credit scores and claims records be made available.

“We have broad powers to force insurers to deal fairly with their customers,” Garamendi said.

At the same time, he said, he wants to deal with insurers in a cooperative spirit, “because it is not in the consumers’ interest to have them leave the state.”

Garamendi, 58, was elected to the insurance commissioner’s post in November. He served an earlier term as the state’s first elected insurance commissioner in the early 1990s.

State Farm, Farmers and Allstate, among the state’s leading insurers, did not raise major objections to Garamendi’s plan.

Farmers said it does not use credit scores in the sale of homeowners policies but does use a computer service to check on past claims. Spokeswoman Mary Flynn said the company is interested in claims filed by prior owners only to the extent that they reveal whether a specific home has had problems with water damage.

Between 1997 and 2001, the number of water-damage claims in California rose more than fivefold, and claims paid increased from $206 million to $1.7 billion, according to a report covering about two-thirds of the California homeowners insurance market that was prepared by the industry’s Insurance Information Network of California.

Allstate spokeswoman Emily Daly said that although the company has not yet seen Garamendi’s proposal, “We are committed to continue working with the Department of Insurance to do what’s right for our customers and consumers throughout the state.”

At ChoicePoint, James Lee, the firm’s chief marketing officer, said the company already makes its CLUE records available to customers, for $12.95 if they want an advance look, and for free if they have already been rejected for a policy purchase.

But at the credit scoring firm of Fair, Isaac and Co., insurance market manager Lamonte Boyd said that providing the credit scores to consumers would be pointless.

“The number is of no value at all to a consumer,” Boyd said. “The important thing is how a particular insurance company utilizes that particular score in relation to its other underwriting guidelines.... The number requires interpretation.”