AAI Says Appellate Court’s Decision Strikes Blow for Insurer Use of Databases in Underwriting, Rating
In an ironic twist, a recent federal appellate court opinion in an insurance fraud case seems to contradict actions by several regulators to prevent insurer use of claims databases, according to the Alliance of American Insurers.
In U.S. v. Veysey, 2003 (June 26, 2003), the U.S. Court of Appeals for the 7th Circuit remarked upon the “apparent carelessness” of insurers in not using technology to build databases to detect insurance fraud.
“The judges in this case apparently are unaware of the Comprehensive Loss Underwriting Exchange (CLUE), a claim history information exchange that enables insurers to access prior claim information for use in the underwriting and rating process,” said Patrick Watts, an Alliance attorney and assistant vice president.
CLUE personal property reports contain up to five years of personal property claims matching the search criteria submitted by the inquiring insurer. Data provided in CLUE reports include policy information such as name, date of birth and policy number, and claim information such as date of loss, type of loss, and amounts paid.
“The court’s comments are ironic in light of recent efforts by consumerists and some insurance regulators in more than seven states to restrict use of electronic databases to detect insurance fraud,” continued Watts.
In particular, the California Department of Insurance has issued an “Advisory Notice” concerning eligibility guidelines and the use of loss information by residential property insurers. This document states that “personal information, such as loss history data, obtained from insurance-support organizations, such as claims database vendors, may not be the basis, in whole or in part, for an adverse underwriting decision; however, an insurance institution or agent may base an adverse underwriting decision on further personal information obtained as the result of information received from such an insurance-support organization.”
The Notice is currently the subject of litigation alleging that it is a regulation that was promulgated without following required notice and comment rulemaking procedures.
“The Alliance supports insurers’ access to information needed to make sound underwriting decisions,” added Watts. “Given the 7th Circuit’s decision, insurers should have access to electronic databases that assist insurers in identifying fraudulent claims.”
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