Dec. 20, 2005 at 7:00 AM ET
You're running on empty, racing around town to get a last-minute Christmas gift, and you make a grave but innocent error. You forget to gas up, and your tank registers "E," and now, you are stuck on the side of the road.
But you thought ahead. You signed up for roadside assistance with your auto insurance company, so with one phone call, help can be on the way - for free!
Not so fast. Summoning that "free" help could end up being an expensive mistake. It could lead to higher insurance premiums, or even rejection of insurance coverage.
Most consumers know car accidents and insurance claims can dog you for a long time. The more accidents, the higher price you pay for coverage. Makes sense. What many consumers might not know is that insurance companies voluntarily share your claim history with each other, using a system known in the industry as the "CLUE" database (Coverage Loss Underwriting Exchange). According to database giant ChoicePoint Inc., which maintains the database, generally, information stays on the report for five years.
OK, that seems reasonable too. After all, people with bad driving records shouldn't be able to escape the consequences by switching insurers.
But the database is vast, and getting vaster all the time. CLUE covers both homeowners insurance and auto insurance claims. It includes everything from auto collision claims, to when you were towed, and in some cases, even when you called your homeowners' insurance company to ask a question about your coverage.
CLUE is, as the name implies, comprehensive.
Now comes word that the CLUE auto reports are even more comprehensive than most consumers realize. Last week, the Tampa Tribune wrote about a woman who was denied insurance because, she claimed, she had called for roadside help too many times -- two flat tires and a "keys locked in her car" incident during three years. (Thanks to the folks at Emergent Chaos for pointing it out).
State Farm, which allegedly rejected the woman's insurance application, wouldn't discuss the specific consumer's situation. But company spokesman Dick Luedke confirmed that emergency road service claims are entered into the CLUE database, and his company does consider such claims when setting rates and determining insurance eligibility.
Consequences of such claims, "Can be anything from a slightly higher rate to a decision not to insure somebody," he said.
Remember, this is an added service that consumers pay for, albeit at bargain-basement rates – the price can he as little as $12 per year. But they are no bargain, particularly because consumers have no idea of the true cost of the plans.
Critics of the insurance industry reacted with surprise.
"Oh my gosh - that's outrageous," said Beth Givens of the Privacy Rights Clearinghouse. It was the first time she'd heard that roadside assistance calls ended up in CLUE. "Probably for many people, that's the only time they use their insurance. ... That sort of thing really needs to be disclosed."
Insurance companies like to use elaborate mathematical models to set prices, so entering roadside calls into CLUE is a natural fit, said Chris Neal, a State Farm spokesman from Florida. There appears to be a mathematical correlation between drivers who lock their keys in their car, run out of gas, etc., and drivers who are expensive to insure, he said.
The insurance industry uses the same logic to include credit scores in its premium-setting formulas. People with lower scores make more insurance claims, statistically speaking, so now, auto insurance firms charges low-score consumers higher premiums.
Such practices aren't legal everywhere. California state law prohibits use of credit scores or roadside calls to set insurance rates. Other states limit such practice.
But where they are allowed, they're not new. State Farm says it's been keeping track of roadside claims for 6 years in at least some states.
Still, it's not clear how widespread the practice is. Allstate said it reports roadside claims to CLUE, but doesn't consider roadside claims when setting rates or determining eligibility. The company suggested the Insurance Information Institute would have more information. Jean Salvatore, spokeswoman there, said it was the first she'd heard of it.
Geico -- which according to the Tampa Tribune, reports roadside calls to CLUE -- didn't immediately return my call.
Progressive, on the other hand, neither reports roadside calls to CLUE nor references the data when setting rates, said spokeswoman Kathy Bell.
But since State Farm is a top national auto insurer, with 40 million cars under policy, it's safe to assume the practice is fairly widespread. That means you should think carefully before calling for help when your keys are locked in your car. It might be worth irritating your roommate, rather than calling your insurance company.
But just how far should you walk in the snow rather than call for that tow truck you've paid for? If you are looking for guidance, State Farm is no help. I asked how many roadside calls are too many -- one a year, two a year, three a year? Luedke couldn't answer.
"It's too complex to boil it down to those simple terms," he said.
So auto insurance consumers are in a pickle -- you can't purchase roadside assistance and know what the real cost is going to be.
That means consumers should do two things:
First: Thanks to the Fair and Accurate Credit Transaction Act, you can get one free copy of your CLUE report every year, and you should. They can be ordered by following this link to ChoicePoint Inc.'s Web site. You'll be able to see if "ERS" -- emergency road service -- reports are kept on you.
And second -- it might be worth skipping your auto insurance roadside assistance plan. Instead, shop around for a plan that doesn't report calls to CLUE. AAA doesn't report roadside calls to CLUE, for example. Even if it's more expensive, at least you'll know what the real price is.