A high frequency of small insurance claims can have a longer-lasting negative impact on you than a single high severity one. It is an unwritten rule in the insurance industry; the fewer claims, the higher the likelihood of having the policy renewed. It can be challenging to square this philosophy with the mindset of “That’s what insurance is for!”.
There is nothing wrong with expecting that a loss, when covered, will result in a paid claim. The general point of an insurance policy is to make you whole again. If a fire breaks out in our home, we will claim the loss, and if our car gets mangled in an accident, we will call that one in too. Of course, those are serious examples, but what about the less serious ones? I’m referring to the claims that don’t amount to much more than the deductible. Over time, those filed claims could cost more than the expense of the losses themselves.
On average, insurance carriers review the last 5-years of claims history when determining what to charge or if they even want to offer a policy to us. The more claims filed over those five years will significantly impact the quoted premium. The dollar amounts paid on the past claims, while noteworthy, are not what carries the most weight.
A house fire is catastrophic and usually leads to hundreds of thousands of dollars paid in insurance claims. However, if that was the only claim in 5-years, a carrier will usually not decline the insurance application. The belief is that the person suffered an isolated and unordinary experience. While the payout was expensive, the likelihood of another soon after is slim. On the other hand, a series of smaller dollar claims can send a red flag to the insurer that the owner is too high of a risk and that it’s only a matter of time before the big claim comes along. That leads to the declination of the insurance application.
Once insurers begin to decline an application, finding comparable coverage becomes challenging. Challenging because the only carriers left can be ones that might be less desirable and offer fewer coverage options. While that might not seem like a big deal, they will often charge more than the leading companies no longer providing coverage due to the claims history.
The best advice I can offer is to consider each loss’s impact on the policy. Have a conversation with your agent to determine if you should move forward with the claim. The proper guidance can lead to less frustration down the road.
Be sure to review our insurance video series for more insurance insight.