Looking to File a Claim? Read this First
Looking to File a Claim? Read this First
By: Emmerson Reynolds & Ryan Reynolds
When something goes wrong, whether it’s a car accident or damage to your home, it’s natural to want to pick up the phone and file a claim. After all, that’s what insurance is for, right?
But before you do, there’s something important you should know, frequent claims and high-severity claims can harm your insurance score and cause your premiums to rise for years to come.
Let’s break down how insurance companies evaluate the frequency and severity of your claims, and why making a claim could cost you more in the long run than you might expect.
Your Insurance Score: What It Is and Why It Matters
Did you know you have an insurance score, and it works a lot like your credit score? Much like your credit score, your insurance score plays a significant role in determining what you’ll pay for home and auto insurance. While it’s not the only factor, it has a major impact on your premiums.
So, how does it work?
Insurance companies use your score to predict how likely you are to file a claim in the future. If you’ve filed several claims in the past, especially high-severity ones, your insurance score may drop. Why? Because the company sees you as a higher risk, meaning they’ll likely charge you more for coverage.
The Frequency of Claims: Why It Matters
Every time you file a claim, even a small one like a windshield or a towing claim, it’s recorded by your insurance company. While filing a claim might feel like a quick solution to a problem, the frequency of your claims can be a big red flag for insurers.
Here are a few examples:
- Three small claims (like windshield replacements) over three years? That’s a pattern.
- Filing a claim every time something minor happens, like a door ding, broken window, or a small fender-bender, also looks like a pattern to your insurance company.
Insurance companies see frequent claims as a sign of higher risk. The more claims you file, the more likely they believe you’ll file again. This could mean higher premiums for you or making it harder to find coverage overall.
The Severity of Claims: Why It Matters
Now, let’s talk about severity, or better yet, how much it costs to repair or replace the damage caused by a claim.
High-severity claims, like a totaled car or major damage to your home, are far more expensive for insurance companies. When you file a large claim, it’s not just about the immediate cost of the damage; insurers also see these claims as a signal that you’re more likely to experience costly losses in the future.
Some examples of high-severity claims include:
- A total loss on a car
- A roof collapse from a heavy storm
- A huge fire claim or a large-scale theft
- Extensive water damage from a burst pipe
The more expensive your claims are, the more likely your premiums will rise. Insurers view high severity claims as an indicator that you’re more likely to encounter high-risk incidents again, which is a financial burden for insurance companies.
The Danger Zone: When Frequency Meets Severity
When it comes to insurance, high frequency and high severity are not a great combination; it’s a double whammy.
If you’re filing multiple claims, especially expensive ones, your insurer may start to see you as a risky policyholder. That can mean higher premiums down the line, or in some cases, they might even choose not to renew your policy at all. If this double whammy is the case, and if they do let you renew, you can expect to pay a lot more than you did before.
Even those small claims you barely thought twice about? Yep, they count too. Every single claim builds a history that insurers use to assess your risk. So if you file often, or for large amounts, you could end up with a lower insurance score, and in the long run, this means fewer options when it’s time to shop for coverage.
How to Protect Your Insurance Score and Avoid Rate Increases
- Evaluate the cost of the damage before filing a claim: Ask yourself if the repair cost is worth the potential increase in your premiums. Sometimes, paying out-of-pocket for minor damages or repairs can be cheaper in the long run.
- Consider higher deductibles: Higher deductibles can lower your premiums and make you less likely to file small claims, but be sure you can afford the deductible if you do need to file a claim.
- Use your claims wisely: Save your claims for serious incidents. If the damage is extensive or you’re in a situation where you can’t afford the repair costs, then it’s time to file. Although for smaller issues, you might want to think twice.
- Maintain a good driving record and home maintenance: A history of no accidents or claims, along with regular home maintenance, will improve your insurance score and make you less likely to see premium increases.
While insurance is there to protect you, it is important to be strategic about when and how you file claims.
If you’re ever unsure of whether you should file a claim or not, consult your agent first. Here at Grimes, we are always happy to help you understand the long-term implications and figure out what the best decision for you is.
