Va. Lawmakers Consider Tightening Use of Insurers’ Underwriting Rating Tools

As the final days of the 2003 Virginia legislative session unfold, lawmakers are considering several bills that would impact the resources insurance companies currently use to underwrite and rate their products.

Senate amendments to House Bill 1948 provide that prior loss histories garnered from the Comprehensive Loss Underwriting Exchange (CLUE) database cannot be the sole basis for an “adverse” underwriting decision. The bill applies to the loss history of a previous owner of a property.

In addition, the revised measure only concerns underwriting, not the rating of policies. Prior to the Senate amendments, the bill would have required physical inspections to be performed if an insurance company wanted to use previous loss histories of prior owners of a property in forming an underwriting decision.

“Even though the Senate amendments give companies more room for their underwriting practices, we still have concerns on the restrictions of using CLUE reports,” Greg LaCost, counsel of the National Association of Independent Insurers (NAII), said. “The homeowners market may harden even more with strict mandates on the use of the CLUE database. CLUE reports indicate the number of claims reported and how many of those claims resulted in loss payments. These are important factors insurance companies use to determine risk and create fair and accurate prices for homeowners insurance policies.

“Now, more than ever, companies need to utilize prior loss history for underwriting purposes, as water and mold claims continue to sharply increase.”

NAII also is concerned that if physical inspections become mandated, it would be costly for insurers and, consequently, consumers. Also, NAII does not believe an inspection would reveal any concerns if the area in question was covered by new paneling or paint, for example.

CLUE is a common source insurers’ use to collect claims and loss data when asked to write a new policy on an existing home. These personal property reports contain up to five years of personal property claims and include claim information such as date of loss, type of loss and amounts paid. Companies representing 90 percent of the homeowners market provide claims data to CLUE.

HB 1948 unanimously passed the House and passed the Senate Commerce and Labor Committee with amendments. The measure now goes back to the House for approval.

Lawmakers are also debating the merits of two credit-based insurance scoring bills. NAII supports both HB 2535 and SB 1284, which do not permit insurers to use credit information as the sole reason for making underwriting and rating decisions. Also, the bills only allow credit information to be used that is derived within 90 days for new business and 120 days for non-renewals. The bills also contain notice requirements and an exception process for catastrophic illness, injury or death of a spouse or member of the same household, among other stipulations.

“We are pleased that the legislature recognized the usefulness of this tool,” LaCost said.