When a simple question can cost you a lot

Hurrican Isabel hit Karen diBenedetto's Virginia condominium complex hard. She lost about $3,000 in household goods that she had placed in her condo's basement storage unit.

When diBenedetto called her insurer, Travelers Property Casualty, to ask whether she was covered, she was told she wasn't because the damage was the result of flooding. She didn't have separate flood insurance.

But what happened next made diBenedetto madder than a wet hen.

According to diBenedetto, one customer representative told her that even though she couldn't file a claim, the mere fact that she called to say she had suffered a loss would count against her. The company, she was told, would have to report her inquiry to the insurance claims tracking database called Comprehensive Loss Underwriting Exchange, or CLUE.

"I have never filed a claim in my life," diBenedetto said. "And yet here was this woman telling me that my call would count against me even though I'm not covered and they weren't going to pay me anything."

It turns out that for many home insurance policyholders, a mere inquiry indicating a loss or damage may get recorded on their CLUE report, even if the insurer never pays a penny.

Fortunately for diBenedetto, this wasn't the case. She had been misinformed. In her case, the inquiry wouldn't be recorded because her policy didn't cover flooding, according to Marlene Ibsen, a spokeswoman for Travelers.

Not all policyholders are as lucky as diBenedetto. Their call about a loss is reported to CLUE.

Insurance companies argue that calls about a possible claim can tip them off to future problems.

"The issue is not really a question of defining what is a claim and what is not, but what information has a bearing on future risk," P.J. Crowley, vice president of the Insurance Information Institute, wrote to me in response to my questions about this industry practice. "Consumers tend to look at dollar amounts and conclude that something that happened didn't cost the insurance company any money, so no harm, no foul. Insurance companies pay a lot more attention to the frequency of problems occurring in the home, as opposed to the severity, as being a key predictor of future risk and future claims."

For example, suppose your home was broken into and a television set was stolen. You might call your insurance company to report the burglary but then decide not to file a claim because the television set is worth less than your deductible.

"In the consumer's mind, there is no claim," Crowley wrote. "However, to the insurance company, there is information that is associated with higher risk, since the house was broken into."

Crowley said claims or calls that indicate damage or losses in the home are used by insurers to evaluate the likelihood that another claim will be filed on that property over the next 12 months and what the homeowner should be charged as a result.

Some insurance companies ignore information that didn't involve a payment, what insurers refer to as a "zero paid claim" or "claim closed without payment."

Travelers, for example, does not consider zero paid claims when considering renewals or new customers, Ibsen said.

Other insurers pay attention to everything in the CLUE report. How a company treats the information will vary by company, market and state regulation, Crowley said.

Crowley recommended that when shopping for insurance, ask the agent about the insurer's policy on handling claims closed without payment.

Jeffrey Skelton, an assistant vice president for ChoicePoint Inc., which maintains the CLUE database, said his company decided to send out a letter in July reminding carriers what information should be reported.

"Claim information should be reported to CLUE when there has been a request from an insured or claimant for payment as a result of a loss," the letter stated. "Claims information should not be reported when a customer merely asks questions about their coverage or deductible."

Ernest Burley Jr., a Maryland-based insurance agent for State Farm, said policyholders should make clear when they call that they are only seeking advice and do not want a claim filed.

However, Burley said some people decide to file a claim and then want to withdraw it after they find out their loss is below or not much more than their deductible.

"It is too late then," he said. "Claims should really only be filed for larger losses -- something that will be a financial burden to the client."

You can order your CLUE report online at www.choicetrust.com or by mail for $9 (the price was dropped from $12.95) by writing to ChoicePoint Consumer Disclosure, P.O. Box 105108, Atlanta, GA 30348-5108. You can also order by calling toll-free 866-527-2600.

The fact is, when it comes to your homeowner's policy and a relatively small loss, you may want to keep your mouth shut because in this case, talk may not be cheap.

Michelle Singletary welcomes comments and column ideas, though she cannot offer specific personal financial advice. Her e-mail address is singletarym@ washpost.com. Readers can write to her c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071.

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