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home / insurance / in the media

North County Times (San Diego, CA)
May 25, 2003

by EDMOND JACOBY, Staff Writer

Woman caught in 'use it and lose it' insurance issue

A Vista woman's insurance company ended its three-decades-long relationship with her over a trio of claims for water damage to her home, the woman said this week.

Ida May Williams, who lives in Gopher Canyon, said that three claims she filed since 2000 were given as the reason why Allied Property and Casualty Insurance Co. declined to renew her homeowner's policy earlier this month. The policy is set to expire at the end of July.

In addition, she said, the company increased the deductible she had to pay when she filed the most recent claim, even though her policy documents do not reflect any increase.

"I'm trying to do a refinance on my home," the elderly widow said.

State insurance officials and other knowledgeable industry analysts say that Williams' case is not unique. It happens often, they said. And they said there was at least one other aspect to her case ---- the real-estate database known as the Comprehensive Loss Underwriting Exchange. They added that certain uses of the database may violate federal law.

"She's suffering from what we call 'use it and lose it' insurance," California Insurance Commissioner John Garamendi said.

"This lady is faced with a twin problem," Garamendi said. "Say that she goes out to buy a new house. She can't get insurance to satisfy the mortgage company for a new house because the insurance company put her name in the database, and she won't be able to sell her old house, even though she's completely repaired it, because they put its address in the database, too. She and her house have bad reputations now."

"What you've got here is sort of the heart of the big insurance fraud that Americans have been seeing over the past two years," said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Los Angeles.

"Her story is not unique," he said of Williams. "They're not picking just on her; the insurance companies are doing this to homeowners across the country, and it has nothing to do with whether there is any real future risk they may face.

"She spent 31 years paying thousands of dollars of premiums to Allied, which invested that money and made more money, and she files a couple of claims and they cancel. It's shameful," Heller said.

"If you bought a subscription to a magazine, would the publisher refuse to renew your subscription if he discovered you actually read the articles in it?" Heller asked. That, he said, is what Garamendi meant by "use it and lose it" insurance.

Two insurance bills are now before the Assembly after passing out of the Senate. They would impose restrictions on the practices of insurance companies.

Senate Bill 64, written by Sen. Jackie Speier, D-San Francisco, prohibits the use of databases that cannot be shown to be accurate predictors of actuarial experience and mandates a number of other changes in insurance company practices. It also mandates offers of insurance in some circumstances and requires companies to reveal some pricing information now considered to be trade secrets. Garamendi backs the prohibition of unsupported statistical scoring, but said that he is unable to support some of the other measures in the bill.

Sen. Martha Escutia, D-Norwalk, offered Senate Bill 691, which prohibits the use of credit scoring in deciding whether to offer or renew insurance. Credit scoring is the practice of using a person's credit history to predict whether that person represents an increased risk for insurers. Like the practice of cataloging claims history, it is a mechanistic system of making decisions that does not rely on personal experience with the customer.

According to the insurance companies, there is a correlation between credit history or claims history and the likelihood that someone will file a claim. Industry critics say that is so much hooey, that similar statistical evaluations have been used in the past to refuse to do business with minorities because of a phenomenon known as autocorrelation.

Williams' mortgage company insists on insurance coverage that she may ---- or may not ---- be able to arrange through an assigned risk pool at significantly higher premiums, she said.

"I'm in limbo right now. The finance company found a new insurer, but the rates will be higher," she said. "I'm just trying to refinance my house!"

According to Williams, she filed claims for damage to her bathroom and bedroom caused by a broken toilet in 2001 and for unspecified damage arising from a leak in a hot water pipe in 2002.

To those, her insurance agent, ABD Services of Redlands, added that she also filed a claim in 2000 for water and mold damage to two bedrooms, two bathrooms and a hallway.

Both Williams and the insurance agent agreed that they were the only claims in the 31 years that Allied insured her home.

The total amount of the three claims, according to the agent, was $13,771. Williams placed the total for two claims at $3,000 to $4,000.

An Allied spokesperson declined to comment on Williams' experience, saying that all such questions must be referred to Nationwide Insurance, Allied's parent. Telephone calls to Nationwide were answered by an automated message system and were not returned.

Heller said that insurers, who maintain a database of people who file homeowner's insurance claims, rely on a history of previous claims to refuse to offer coverage or to refuse to renew coverage of those people. Williams, he said, has found her way into that database.

"These companies have become, in some sense, so computerized that they have no ability to recognize the actual experience of individual customers," he said.

"We can't let consumers shy away from using their insurance policies," Heller said.

According to both Heller and Garamendi, the practice of cutting off and blacklisting policyholders who file claims is possibly illegal.

The whole point of insurance is to pay someone else ---- the insurance company ---- to assume the financial risk of loss through damage to the insured's property. The premiums are the fees paid to the company to accept that risk. Insurance companies, according to industry critics, want to have things both ways: They accept the premiums, but do not want to accept the risk.

"In this lady's case, it sounds like the company used a database of prejudicial information as the basis of denying her renewal," Garamendi said.

"Under federal law, they are required to inform her when they do that and give her an opportunity to comment on the information, or to correct it if it is wrong," he said. "Did they tell her? If the company did not do that, it committed a federal offense."

Garamendi said that the state of California, through his office, is "telling insurance companies that they had better obey the federal law."

"We will audit them, and if we find them in violation of federal law, we'll tell the feds and we will take steps to enforce the law," he said.

Meanwhile, Garamendi offered this advice to Williams and to anyone else who finds himself or herself in Williams' position: call his consumer hotline at (800) 927-4357 and file a formal complaint.
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Contact staff writer Edmond Jacoby at (760) 739-6675 or ejacoby@nctimes.com


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