A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 18, 2021

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Here's what you need to know...

  • As a consumer, you have a right to privacy under the Drivers Privacy Protection Act
  • The Drivers Privacy Protection Act, personal information can’t be released to just any person or entity unless it’s for a permissible use under the law
  • Insurance companies in states with electronic verification systems do report the status of car insurance policies real-time when there’s a lapse of coverage
  • If a lapse is reported to the state motor vehicle agency, the agency may suspend the vehicle’s registration or the driver’s license for failing to comply with the law
  • Insurers report claims to a database called C.L.U.E. so that all licensed carriers are able to accurately underwrite risk
  • Anytime you apply for auto insurance or go through the renewal process, your carrier will run your C.L.U.E. report to see if you’ve had any recent losses that weren’t reported

Have you ever wondered how an insurance company finds out you’re being less than honest on an application? Even when you’re being forthcoming, the insurance company is able to swoop in and tell you that the date of the accident you disclosed is incorrect. This is possible because insurance companies share your motor vehicle records with other carriers. Not only does a company communicate with other carriers, they might also communicate directly with the state.

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While it might feel like a violation of your personal privacy, sharing information is a must. It makes it possible for companies to price their products accurately by charging their clients an appropriate premium. It also makes it possible to combat uninsured motorists by identifying them as soon as their coverage lapses. The law may not be perfect, but there are protections in place that say what information can and can’t be shared. Knowing the difference can help you protect your rights as a consumer while you shop for insurance.

Understanding How Insurance Rates are Made

Companies don’t just pull numbers out of thin air to decide what to charge their clients for a unit of coverage. Instead of doing this or underscoring what competitors are charging, companies go through a long and detailed rate making process to price their products.

When rates are made, insurers aren’t just thinking about profitability, they are thinking about charging adequate premiums so that they can cover losses and operating expenses.

This is why they’ll pay for actuarial studies that predict the probability of a loss and how much the average loss will cost the insurer. Calculating these numbers can be expensive, but the statistical analysis is necessary when you’re talking about projections that will keep a business operating.

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Personal Rating Factors are Used to Calculate Individual Premiums

After gross rates are made, it’s the underwriter’s job to determine which risk class a specific person falls into. This helps the company calculate the gross premium that will be charged to an insurance applicant. Several different rating factors are considered to determine which class a household should fall into. Some of the risk factors that are considered as premium is calculated include:

  • Driving record
  • Accident record
  • Age and gender
  • Number of years of experience behind the wheel
  • Marital status
  • Commute or pleasure driving use
  • Exposure on the road
  • Number of miles driven
  • Previous insurance
  • Occupation or student status
  • Type of vehicle and vehicle safety rating

Insurance Underwriters Need Accurate Information to Assess Risk

A provider can’t just take your word for it when you say you have a clean driving record or that you’ve been driving since your 16th birthday. Instead of believing that you put on your application, the company uses the information that you provide to run reports and verify that you’re being honest.

It’s not possible for an insurance underwriter to verify an applicant was honest and forthcoming on their application without first checking your claims history, driving record, credit history and licensing status. So to charge adequate premiums and to keep the insurer’s projections in mind, the company needs to run reports and dive into the applicant’s past. It’s the underwriter’s job to take an unbiased look at the applicant’s life behind the scenes to determine if it’s wise for the company to extend an offer for coverage.

Insurance Companies Communicate with Each Other

To ensure that underwriters have the most accurate information to review, all licensed insurance companies report information to a universal database. The system that insurers use to size you up is called the Comprehensive Loss Underwriting Exchange, or CLUE.

Companies will report the claims that you’ve made while you were a policyholder on your C.L.U.E report.

They’ll also report how much was paid out and if you were at fault for the loss. When you apply for coverage, you’re giving the company permission to run this report to assess your application. This is how companies are able to see if you’ve had a loss that you may not have reported to the police or the Department of Motor Vehicles.

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Can policyholders see what’s reported about them?

Under the Fair Credit Reporting Act you’re entitled to get a free copy of your C.L.U.E report. You can request a copy of the information through Lexis Nexis Consumer Center by calling 866-312-8076 or by visiting the company online at www.LexisNexis.com. Requesting your information is important if you think your report isn’t accurate.

What is the Drivers Privacy Protection Act?

Your information can’t be shared with just any agency. There must be a permissible reason for the insurer to share your information with specific consumer agencies.

Not just anyone can call your company up and ask if you have coverage or for information on your records. This gives you peace of mind in knowing that your information is private in a sense. If someone has a loss with you, however, they are entitled to get information about to collect for the damages that you cause.

Insurance Companies Are Required to Communicate with Motor Vehicle Agencies

Not only do companies communicate about claims, they also communicate about the status of your coverage. Since you’re required by law to have coverage, many states are making it a requirement that your coverage is electronically reported.

In these states, insurers will report your coverage real-time through a system so that the motor vehicle agency can fine you when your coverage lapses.

Buying insurance is a requirement in all but two states. If you don’t have insurance, you’ll be fined by the state and could lose your driving privilege. While it’s a requirement, you should know how your personal information is shared while you’re applying for coverage. There are protections in place, but for the industry to work insurers need to communicate about your past. If you’re interested in buying coverage through a new provider, make sure that you’re honest when you apply. Use an online rate comparison tool to compare premiums first and then you can bind coverage right away. Enter your zip code in our FREE tool below to start comparing car insurance rate now!