Insurers keep a secret history of your home

The nation's largest property insurers have dropped thousands of policyholders from coast to coast and stopped writing homeowners insurance in more than a dozen states. So far, insurers' increased use of the CLUE database has not caused serious problems for the real estate industry, said George Tribble, a member of the National Association of Mortgage Brokers' board of directors.

But Tribble said he has heard a number of anecdotal reports of residential sales falling through at the last minute because of CLUE-related problems in securing insurance.

"If you're not able to get insurance, you're not able to close the deal," he said.

Tribble thinks it's particularly unfair that a home could be blackballed because of one claim, let alone a single report of damage that didn't lead to a claim.

"Insurance companies want to keep their costs down, which is understandable," Tribble said, "but this is what you have insurance for -- to cover you for accidents."

The insurance industry is notorious for its manic-depressive cycles. In profitable years, companies will slash premiums, boost coverage and take on big risks in hopes of gaining market share.

When those risks start costing real money, the companies sound the full retreat -- hiking premiums, dropping customers and shunning risk.

How to protect yourself

While you can't do much about insurers' overreactions, you can do plenty to protect yourself in this particularly difficult time. Among them:

• Keep your home in good repair. A solid, watertight roof, good plumbing and a decent paint job can protect your home from various water disasters. It's a good idea to regularly check the hoses on your washing machine and dishwasher, because cracked or burst hoses often lead to serious water damage.

• Keep your deductible high. Pay for smaller expenses out of your own pocket. Homeowners insurance should be reserved for the big disasters, not the little problems you can easily pay for yourself.

• Think twice about water-related claims. This is especially true if you plan to sell within a few years. You could be better off paying to repair the problem yourself rather having your home branded as high risk.

• Don't tell your insurer about problems unless you're sure you'll file a claim. This last piece of advice is unfortunate, because insurers and insurance agents can be a decent source of counsel on whether it's worth filing a claim. Because any damage you report could be passed on to the CLUE database, however, it's smart now to err on the side of caution.

• Consider getting a copy of your CLUE report. You're entitled to a free copy of your home's CLUE report every year or if you've been denied insurance. You have the right under federal law to dispute any erroneous information on the report.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated July 14, 2009

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