Sources of Insurability Information
A part of the underwriting process is to determine the insurability of the applicant. Insurers have several resources for gathering information to make this decision.
Important!
Most information sources must be agreed to by the insured in writing before the insurer can use them. The insured typically signs consent forms when applying.
The 5 Sources of Underwriting Information
Application Form
Motor Vehicle Records
Interviews
Neighbors, friends, employers
Property Inspection
Insurance History
(CLUE Report)
Application Form
A printed form that includes questions about the prospective insured and desired coverage. This is the primary source of information!
Typical Application Questions:
- Property address and description
- Year built, construction type
- Coverage amounts desired
- Prior claims history
- Current insurance carrier
- Safety features (alarms, sprinklers)
Motor Vehicle Records (MVR)
Official driving records obtained from the state DMV. Essential for auto insurance underwriting!
MVR Shows:
- Traffic violations
- Accidents on record
- DUI/DWI convictions
- License suspensions
- Points on license
- License class and restrictions
Example: An applicant claims a clean driving record, but the MVR reveals 3 speeding tickets and an at-fault accident in the past 3 years. The underwriter adjusts the premium accordingly.
Interviews with Third Parties
Conversations with neighbors, friends, and employers to gather additional information about the applicant.
Neighbors
Property condition, lifestyle
Friends
Character, habits
Employers
Employment verification, stability
Note: This is part of an "Investigative Consumer Report" and requires special disclosure to the applicant under FCRA (covered in Part 6).
Inspection of Property
Physical examination of the property being insured to verify its condition and identify hazards.
Inspector Looks For:
- Roof condition and age
- Electrical system condition
- Plumbing and HVAC
- Fire hazards
- Safety devices present
- General maintenance
Example: An inspector visits a home and discovers the roof is 25 years old with missing shingles. The underwriter may require the roof be replaced before issuing the policy, or exclude roof damage from coverage.
Inspection of Insurance History
Review of the applicant's past insurance claims and coverage history, often through the CLUE Report.
CLUE (Comprehensive Loss Underwriting Exchange):
A database that tracks claims history for both people AND properties. Shows claims for the past 5-7 years.
What CLUE Shows:
- - Previous claims filed
- - Amounts paid
- - Types of losses
- - Claim dates
Why It Matters:
Past claims predict future claims. Multiple claims = higher risk = higher premium or denial.
Real-World Scenario: The CLUE Report Surprise
The Setup:
The Martinez family is buying a beautiful home at 456 Oak Street. They apply for homeowners insurance and everything looks great on their application - no claims history for the family.
What Happens:
The underwriter pulls the CLUE report - which tracks both PEOPLE and PROPERTIES. The report shows that 456 Oak Street had 3 water damage claims in the past 5 years (filed by the previous owner), totaling $45,000.
The Result:
Even though the Martinez family has a perfect claims history, the PROPERTY's history follows the house. The insurer either charges a higher premium, excludes water damage coverage, or requires the plumbing be inspected/upgraded before issuing the policy.
Exam Tip: CLUE tracks BOTH the person AND the property! A home's claims history follows it even when ownership changes.
The Policy Application
The application is the most important source of underwriting information. It provides everything the underwriter needs to accept, reject, or rate a policy.
What the Application Provides:
- - Information about the prospective insured
- - Desired coverage types and limits
- - Information for accepting or rejecting the risk
- - Data for rating (pricing) the policy
Important Facts:
- - Some policies make the application part of the policy
- - Misrepresentations in the application can void the policy
- - Answers are considered representations (believed to be true)
Warning: Misrepresentations Can Void the Policy!
If an applicant lies or provides false information on the application, and that information is material (would affect the underwriting decision), the insurer can void the policy - even after a claim!
Example: An applicant says they have no prior claims. After a fire, the insurer discovers 5 previous claims. The policy can be voided for material misrepresentation, and the claim denied.
Exam Trap Alerts
Written consent required: Most sources of information require the insured's written consent before the insurer can access them.
Application = Part of Policy: Some policies incorporate the application as part of the contract. This means your answers are binding!
CLUE tracks properties too: The CLUE report tracks claims history for BOTH people AND properties. A house with many claims will affect the new buyer's insurance!
Quick Reference: Part 5 Summary
5 Information Sources
- 1. Application Form
- 2. Motor Vehicle Records
- 3. Interviews (neighbors, employers)
- 4. Property Inspection
- 5. Insurance History (CLUE)
Application
- - Primary source of info
- - May be part of policy
- - Misrepresentation can void policy
Key Points
- - Written consent usually required
- - CLUE tracks people AND properties
- - Past claims predict future claims