Insurance companies retain a mother lode of claims information in proprietary databases. They log causes of claims, names of claimants, and coverages under which claims are made. Insurers share that information by sending it to a gigantic database of claims information maintained by the Insurance Services Office (ISO). The claims information in such databases can reveal patterns of problems with countless products from car parts to home appliances to sprinkler systems. In addition to sharing claims information among themselves, from time to time, insurers also provide government agencies with information about claims that might have been caused by defective products.

For example, in the ongoing case implicating Firestone/Bridgestone model tires in 88 deaths and 100 injuries, the National Highway Traffic Safety Administration (NHTSA) had received 333 complaints about that brand between 1990 and April 2000. As of Aug. 15, complaints have surpassed 750. State Farm had alerted NHTSA in 1998 to a potential problem with the tires, and when NHTSA began its investigation in April, one of the first sources it tapped was State Farm.

"We have a handshake agreement with NHTSA," says Phil Supple, a spokesperson for State Farm. "We'll share what we have with them, such as numbers of claims and trends," he says. But State Farm does not regularly report potential product problems to NHTSA.

Supple says State Farm approaches each problem-product situation differently. It has a staff dedicated to tracking claims, and if one its trackers notices a trend, it might send NHTSA or another agency a "heads up."

State Farm was able to provide NHTSA with 21 claims it had processed since 1992 suspecting Firestone's ATX tires as the cause of traffic accidents. Rae Tyson, a spokesperson for NHTSA, says State Farm's research includes the type of damage to the vehicles, the number of injuries, the location of the crash, and the cause of the accident. Tyson notes that his organization does not receive personal information about State Farm policyholders.

"State Farm doesn't provide us with specific information about each claim, such as the claimant's name, the claim number, or the Vehicle Identification Number," Tyson says. NHTSA uses State Farm's general research in conjunction with the more specific complaints its defects division receives.

Insurers prefer quiet reporting

NHTSA isn't the only government agency that taps the insurance industry for information on potential product defects. The Consumer Products Safety Commission (CPSC) also uses data gleaned from insurance company claims databases to aid its investigations. "There have been reports to us from insurers over the years," says Ken Giles, a spokesperson for CPSC. Specifically, CPSC has turned to FM Global's (formerly Factory Mutual Insurance Co.) research arm, Factory Mutual Research, for its expertise. Why? "We're the only commercial industrial insurance company that does research and testing of products," says Steven Zenofsky, a spokesperson for FM Global. Zenofsky says, however, that when CPSC contacts Factory Mutual Research, FM Global keeps the nature of the inquiry confidential.

When insurers provide data and research to government agencies, they may not be acting altruistically. Often insurers are looking to help support their subrogation efforts against the manufacturer of a defective product. When an insurance company subrogates, it seeks reimbursement from a party it deems responsible for a customer loss it had to pay. If a government safety organization issues a recall of a product that failed to work or caused an accident in which the insurer paid a claim, the insurer can use the government recall as leverage in its collection efforts.

In fact, at the National Association of Subrogation Professionals (NASP) annual conference in November, CPSC's chairwoman, Ann Brown, will be the keynote speaker. NASP calls CPSC "an invaluable asset and a wealth of information on product issues."

Jeffrey Baill, president of NASP and a lawyer at Minneapolis-based Yost & Baill, says NASP does not yet have a formal information-sharing agreement with CPSC, however NASP members — many of whom are insurance company employees — contact CPSC whenever a problem product rears its ugly head. Currently, Baill is working on a case involving a brand of utility lighters, commonly used to ignite barbecues. The lighters are not childproof and when toddlers get a hold of them, fires are a common result. "The claims person I'm working with on this case immediately called CPSC to warn them about this lighter," Baill says.

Baill also says he would not be surprised if the majority of problem products, especially those linked to fire hazards, are sniffed out by insurance companies, although he has no direct evidence to support his claim.

Avoiding the media storm

So why don't insurers issue public bulletins when they discover a pattern of problems? Because they do not want to cause a public panic by announcing they have uncovered two dozen claims over four years that seem to have the same cause. Instead they'll report problems or provide research on the "QT." "We don't want to cause a media storm," says Zenofsky of FM Global. They also don't want to falsely accuse a manufacturer of selling a defective product, especially when perhaps only a handful of claims involve the problem product. That's how defamation lawsuits start.

Despite the amount of data insurers collect, they are not required by law to report problems to government agencies, and there's no formal information-sharing agreement between NHTSA, CPSC, and insurance companies. Supple of State Farm says his company provides data to government agencies as a goodwill gesture, but says, "We're not a product defect-warning company."