Homeowners insurance used to be a no-brainer: You bought a house, you called an agent, you got insurance. Now, after suffering what one insurer in the state calls an unprecedented convergence of negative trends, the homeowners insurance industry is taking a tougher stance toward both its customers and the properties it will agree to cover.


Thats bad news for some homeowners.


Long-time customers are being dropped by their insurers for filing as few as two claims in five years, while some home buyers are having problems obtaining insurance at all, insurance agents here say.


Thats because national insurance companies, battered by Sept. 11 losses, natural disasters, and a poor investment climate, are jettisoning risk to improve their financial picture.


One way theyre doing that is by using a controversial tool called CLUE, or comprehensive loss underwriting exchange. CLUE is a database maintained by a private company that tracks claims filed against specific properties. Its been used by insurance companies for years to try to thwart fraud, but now theyve decided to use it as an underwriting tool, and complaints about the practice are on the rise, says Scott Jarvis, Washington states deputy insurance commissioner for consumer protection, in Olympia.


Last year, the Insurance Com-missioners office received 26 complaints about CLUE, which was more than double the number in 2001, says Jarvis. A decade earlier, the office received just one such complaint.


Clearly the trend is up, and its being used more and more, Jarvis says.


The implications for the housing market are great, says Jim Carollo, of Tomlinson Black Affiliate Services, which provides marketing and business-development services to the real estate companys offices here.


If you want to buy a home that turns out to have a history of claimsespecially for water damagean insurance company probably will not give you insurance unless you go on a high-risk basis, Carollo says. Such high-risk insurance typically runs double or triple the cost of preferred insurance, insurance agents say. Since a homeowners insurance bill often is figured into the monthly mortgage payment, that higher cost could keep a buyer from qualifying for a mortgage on that property, Carollo says.


I dont know where weve had any situations where weve lost the buyer or the deal because they could not get insurance, but were approaching that, he says.


For its part, the insurance industry says that CLUE is just one tool used in making an underwriting decision.


Its one of many factors; its certainly not the only or most determining factor, says Nancy Carpenter, regional spokeswoman for State Farm Insurance, in Dupont, Wash.


The Washington Association of Realtors recently met with Jarvis, of the Insurance Commissioners office, to discuss the use of CLUE in underwriting homeowners insurance.


Jarvis says the Insurance Commissioner wont do anything to curtail the use of CLUE without specific evidence of abuse, and says that at this point, most of what hes hearing is anecdotal. Still, We will be tracking the information and when we reach a certain point and it looks like abuses are taking place, we may make some recommendations, he says.


Multiple challenges


Problems in the homeowners insurance market extend beyond the use of CLUE, with property-and-casualty insurers facing challenges on multiple fronts.


The investment markets that insurers long have relied on to augment their underwriting revenues have plummeted, just as the costs of reinsurancewhich are the insurance policies taken out by insurance companies to offset their riskhave spiked due to the Sept. 11 terrorist attacks, says the National Association of Independent Insurers. Home construction and repair costs rose more than 17 percent between 1998 and 2000, driving up the cost to insurers of covering claims, the Des Plaines, Ill.-based association says. In addition, claims arising from mold in homes have skyrocketed in some parts of the country, although Washington state limits the amount that insurance companies must pay for those claims, Jarvis says.


The result? The property-and-casualty insurance industry had its first industrywide net loss in history in 2001, posting a combined $7.9 billion deficit, the insurance association says.


State Farms Carpenter says that in 2001 that insurer paid out $1.14 in claims for every dollar it received in premiums in Washington state. We can only do that for so long before something has to change, she says.


The answer has been for insurance companies to get rid of their riskiest customers, agents here say.


I talk to a couple people a month that are getting canceled, says Kevin Burt, an insurance agent at Spencer Kinney Inc. here. Generally, preferred companies, or those with the lowest rates, will cancel a policy if there are two claims of any size filed within the previous five years, he says, adding, Its just a tight market right now.


Jim Clouse, owner of Rockford-Worley Insurance Agency, in Rockford, Wash., and an insurance agent for nearly 40 years, says, This has been the hardest market that Ive ever experienced for any insurance product. This is the first market that Ive not been able to get people a policy.


One Spokane County couple, for example, had two major claims in two years and were dropped by their insurer. Since then, theyve been unable to get homeowners coverage of any kind, even with a company that writes high-risk policies, says the wife, who asked to remain anonymous since their property currently is uninsured.


Weve been told that we can wait three to five years for it to fall off our record, but then Im sure after three to five years (the insurers) will all say, Why didnt you have insurance for all this time? and they probably wont give us any (then) either, the wife says. Its just frustrating and I think its going to get worse.


Asked what she and her husband intend to do about insuring their home, she replies, I guess we just pray.


Clouse and Burt say that although they dont relish the job, theyre now telling their clients not to file an insurance claim if the cost of the repair or replacement is less than $1,000, $2,000, or even $3,000.


I find it very difficult to tell a customer that hes going to have to pay for his own claim, when this is why hes got insurance, Clouse says.


Jarvis, at the state Insurance Commissioners office, says theres nothing to prevent insurance companies from tightening their underwriting standards and canceling policies when people file two or more claims within five years.


Its a contractual relationship. They agree to provide you coverage for a fixed period of time, and they may or may not decide to keep you, he says.


Jarvis also advises homeowners to pay smaller claims out of their own pockets, and further cautions them not to even report those incidents to their insurers. Thats because the insurer could enter the information into the CLUE database even if an actual claim isnt filed or paid, Jarvis says.


Im not asking anybody to hide anything, but the reality is if its something you can fix yourself, just fix it, he says.


Home buyers likewise must adjust their approach to obtaining homeowners insurance to reflect the current tight insurance market, says Bob Mitchell, executive project coordinator with the Olympia-based Washington Association of Realtors, who is handling the insurance issue for the association.


Buyers need to start the process of shopping around for insurance much earlier in the home-buying process, just like they would shopping around for financing, he says.


Eventually, the financial forces that have created todays difficult market for homeowners insurance will ease, and companies will begin competing for business again, Mitchell and others say.


Historically, the insurance market cycles between hard conditions, such as those that prevail now, and soft conditions, or a more competitive environment, Jarvis says.


In the past, hard markets have only lasted 18 months to a couple of years, and were about halfway through that right now, he says.


Says Clouse, at Rockford-Worley Insurance Agency, Ill be glad when were through this thing.