I often take phone calls from clients who are trying to decide whether to file a small claim or just take care of it out of their own pocket. One of their questions is usually whether filing a claim might hurt their insurance going forward.
The answer to this question can depend on several factors. First of all, some types of claims are surcharged by most insurance companies. A surcharge basically means that at your next renewal your rates will go up specifically because of that claim. Or, to put in another way, a surcharge is the opposite of a discount.
On an Auto policy, most carriers will surcharge any accident claim that is not someone else’s fault. Examples of this would include rear ending another driver, falling asleep at the wheel, failing to yield in an intersection, plus other less obvious situations such as slipping into the ditch due to icy conditions, backing into a tree in your driveway or tapping the bumper of a parked car at the store.
Auto insurance claims that are not typically surcharged include hitting a deer, hail damage, glass damage, theft, finding that your vehicle was hit while parked and accident claims where someone else is clearly at fault.
It’s worth noting that some carriers offer accident forgiveness, which typically “forgives” the first accident which might otherwise be surcharged. Several insurance companies offer this as an add-on to your policy which can be purchased before the accident occurs. In some cases, accident forgiveness might come as a free loyalty reward after you have been with the carrier for several years.
On a Homeowners policy, insurance companies tend to surcharge most non-weather-related claims. Examples of claims likely to be surcharged include burglary, water damage caused by a broken pipe and an injury on your premises.
Insurance carriers surcharge claims because their statistics indicate that people with certain types of prior claims are more likely to suffer another loss in the future. Because insurance pricing is based on calculating your statistical likelihood of filing a future claim, prior losses are often surcharged. Typically the same surcharge will apply regardless of whether the claim was filed under your current policy or with a prior carrier. Most often, surcharges apply until the loss is over three years old.
It’s also worth noting that in some cases, you could see an increase in your premium after a loss even when a surcharge doesn’t apply. For example, I mentioned that weather claims on a Homeowners policy are not usually surcharged. However, a carrier might be giving you a discount for being claim free for the last three and then might remove that discount after paying you to repair storm damage to your home. While this is not technically considered a surcharge, this would still result in an increased premium due to the lost discount, although likely not as much of an increase as if a surcharge was also applied. Discounts can vary from carrier to carrier; so you may wish to ask your agent about this when starting a new policy. (However, keep in mind that over time, your carrier may change what discounts they apply and how.)
Now that I’ve explained the possibility of an increase in future rates, let’s talk about a bigger concern. Could filing a claim result in your carrier not continuing to insure you going forward? If the insurance company feels that your claim history makes you statistically risky, they might not want to renew your policy at the end of your current term.
However, there is good news in Minnesota. State law does not allow insurance companies to non-renew Homeowners or Auto insurance unless certain criteria are met. On a Homeowners policy, your carrier is not allowed to non-renew you because of claims unless you have had two non-weather-related paid claims in a three-year period. (See examples of such claims above.)
On an Auto policy, the state devised a point system that looks at accidents and tickets in the last three years. For example, on a single car policy, two chargeable accidents or one chargeable accident plus a couple tickets would be enough to non-renew. Further, your Auto Physical Damage coverage can be non-renewed if you’ve been paid on three to four physical damage claims in the past three years, regardless of fault. Because of these state-imposed restrictions, we don’t see policies non-renewed very often, but it does happen occasionally.
So what would happen if you actually were non-renewed? Often in this situation, people are forced to go with a policy that is either more expensive and/or provides less coverage. As an independent agent representing multiple carriers, we usually are able to find our client an alternative in this situation, granted they may not be as thrilled with the rate or coverage provided on the new policy.
So, let’s say you were trying to decide whether to turn in a deer hit claim to your insurance company. It might make a difference whether this is your first claim in the last three years or whether you have had one or more previous claims. While it’s impossible to say what might happen in the future, it’s less risky to turn this one in if it’s your first claim in a while versus if it’s your second or third recent claim.
This discussion begs an obvious question: Why even bother buying insurance if using it will just increase your rates or cause you to be non-renewed? My answer would be to consider what the main purpose of insurance actually is - to protect yourself against the unlikely chance of catastrophic financial loss. You didn’t buy your Homeowners policy because you were concerned about replacing your furnace filters; you bought it because you wanted to be protected in case your home burned down. Taking care of smaller losses yourself and reserving your insurance to cover the possibility of a larger, more severe loss is a strategy that may lead to more stable rates and coverage over time. With this in mind, some people will consider the premium savings available with a higher deductible.
So when a client asks whether they should turn in a claim for payment under their policy, my role is to provide worthwhile information that might assist them in their decision. Having said that, if there is a loss involving an injury or a third party, we usually have no choice but to report it, and in certain cases our agency might be contractually obligated to report a loss we’ve been informed of whether our client wants to turn it in or not.
Information and guidance after a loss is one of the great benefits of having a relationship with a local, professional insurance agent. If you don’t have such an agent now, maybe it’s time we talk.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.