When To File A Claim (And When Not To!)

September 04, 2014
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Having an insurance claim can be a dramatic event in one's life. However, knowing when and when not to file a claim could prove very important to your pocket book.

Maybe you have the mind set that you will file any kind of claim as that is what you are paying insurance premiums for. Higher, more severe claims without question, should be filed. However, filing smaller claims that are closer to your deductible should be reconsidered. Here is why.

Keep in mind that whether you have Auto or Homeowners Insurance, carriers will look at claims frequency and severity over the period of three years with most carriers. Some carriers may extend that to 5 years, but most evaluate your profitability over a period of 3 years.

This profitability is called a loss ratio, which breaks down to premiums taken in vs. claims paid out minus expenses. Insurance carriers look at a loss ratio for each policy on the books. If your ratio is becoming unprofitable to the carrier, they will allow various exceptions based on longevity with the carrier or other extenuating circumstances before they raise your premiums or set your policy up for cancellation.

Most carriers on the Car Insurance side have a preferred and standard tier. If your loss ratio is not profitable, the carrier may kick you into a lower tier thus charging you more in premiums. If the claims are too frequent or too severe the carrier may make the decision to non-renew the risk altogether.

The Loss Ratio And Your Premium

Where filing very small claims really hurts you is if you have to shop your insurance. On the auto side, most carriers will give you a claim free discount if you have had no claims in the past 3 years. If you have had some claim activity, this discount will be taken off and then you could be surcharged for the claim or kicked into a lower tier as a result. Some of the ultra-preferred carriers will not allow any claims in the last 12 months so you may be kicked out altogether.

So let's say you have a $500 Auto Insurance deductible and you back into a mailbox. If it costs $600 total to fix your vehicle, filing that claim for $100 is not going to be in your best interest as this will count as an at fault accident for the next 3 years. This $100 claim payout could result in $1000 in extra premiums paid over this 3 year period.

Same thing on your Homeowners Insurance, if you had a water claim that was slightly over you deductible, it just isn't worth you filing the claim as that water claim will hurt your ability to shop your rates for the next 3 years. In addition, some carriers flat out won't write you if you have any non-act of God claims in a 3 year period. If you had two of these small claims, you will definitely not be able to shop until the 3 years is up. With 3 claims, you will most likely be set up for non-renewal and you will have a huge difficulty finding new coverage. You will end up going to the high risk carriers that will charge you two and a half times the premium to cover you. Yikes!

So what is worse in the eyes of the insurance carrier, having one Home Insurance claim where $1000 was paid or 3 claims where $500 total was paid? The 3 claims will hurt you more as the insurance carrier will advise that you have a claim frequency issue.

Before you contact the insurance carrier to file a claim, pick up the phone and call your agent to review to see if it makes sense to do so.

Kind Regards,

Tom Johnson-Owner

Southern Insurance Group

[email protected]

352-243-9000 Ex.1011