Are you in the process of buying a home? If you wait until the last minute before closing to obtain a property insurance policy, you might not arrive at the closing table with a policy in hand. Many times it’s because you don’t have a CLUE (Comprehensive Loss Underwriting Experience)! While property insurance is often put on the back burner, it’s actually one of the very first items you should address, especially in today’s market.
Insurance companies require a CLUE report to be obtained on both the person trying to obtain insurance (the buyer) and the property to be insured (the asset). When a person files a claim on an insurance policy, that record is submitted to CLUE, and is usually on record a minimum of 5 years. This report is one of the tools used by insurance companies to determine whether or not they want to write a policy on a risk. The risk includes both the individual and the property being purchased. The number and type of claim(s) within the 5 year period greatly affects the number of insurance companies willing to assume the risk as well as the price of the policy.
The types of losses or prior claims that cause insurance companies concern on the property being purchased are:
Water Damage – Two or more water damage claims within a 5-year period indicates there is probably a plumbing issue in the house. Water damage claims year in and year out are the most costly to insurance companies. There are costs associated with drying the house so repairs can be assessed and made, plus there are costs to replace carpet, hardwoods, ceilings, walls, insulation and personal property, which can be significant. Now, if the plumbing is torn out and replaced, the concern is alleviated and the risk is considered desirable.
Theft or Vandalism – Two or more of these type of losses within the 5-year period is an indication the property may be located in a high crime area. However, the possibility also exists that a theft loss occurred away from the property. For example the prior owner filed a claim for items stolen from a hotel room. In this case, the loss is not considered as having occurred on the property location and is not a factor.
Flood Damage – Homeowners were required to file a flood claim during the September 2009 rains in Georgia by the Federal Government in order to be considered for financial assistance. These loss reports will show up when a CLUE report is pulled, disclosing to a future buyer the home had previous flood damage.
Wind and Hail – 2008 and 2009 were record years for Catastrophe Claims from wind and hail damage in Georgia. Some people have not repaired or replaced their roofs even though payment has been made by an insurance company. A future buyer will not be able to get insurance on a home that has been damaged and not properly repaired. The CLUE report will “clue” a buyer in to the fact that money was paid for the damages, yet the roof is still in bad shape.
Insurance is made available for the risks that insurance companies are not willing to write through the Georgia Fair Plan, but the price for these policies is quite astronomical. However, it is a solution to not being insurable on the open market. For more information, go to georgiaunderwriting.com.
My advice is as soon as a contract is underway, buyers should obtain a quote from an insurance agent. Part of the quoting process includes the agent obtaining the CLUE report prior to binding the coverage on the home. If the issues are addressed well in advance of the projected closing date, it will eliminate any surprises and make closing on your new home that much easier!