Claims and Insurance Rates

Even though the purpose of insurance is to pay for claims there are certain circumstances when filing a claim for a loss will raise your insurance rate. This happens when a claim has exceeded a specific threshold amount, claims have increased in a particular region or because of previous claim history. Insurance companies take various actions depending on claims for specific types of policies.

There are some instances where filing a claim will raise the rate an individual pays for their home insurance premium. Normally an insurance company will not raise a person’s insurance rate after one claim has been filed. Usually, a person’s insurance rates will raise depending on how many claims have been filed in a specific time period or threshold. When insurers pay out for individual claims they may need to increase rates to make up for the amount they have paid already paid out. As a result a policyholder may see increased rates at their renewal.

If claims for a particular region have increased as the result of a storm such as a tornado an insurer can take a variety of actions. These actions can come in the form of rate increases. A rate increase not only affects individual’s filing a claim but an entire state depending on an insurer’s loss history. In order for an insurer to raise the rate on an insurance policy they are required to notify the state in which the rate increase will take effect. They can do this by using a specific provision which is either “file and use” or “use and file”. The difference between the two is that under a file and use provision an individual state can deny the rate increase request.

The insurance rates for a policyholder can increase based on their past claims history. Like automobile insurance insurers can check in insured’s past claim history using reports obtained from various sources. Usually an insured needs to file a certain number of claims with a specific time period, such as three years, in order to be assessed a higher rate. This means that if in individual cancels their policy with one insurer and gets one with another they may be assessed higher rates for having filed one or more claims within the past three years. The claims history being used by an insurance company can vary depending on how many years they want to apply.

An insurer has a few options available to them as the result of the amount of claims that have been paid out on a specific type of policy. If the amount of claims exceeds their threshold amount they can either non-renewal individual policies, charge a higher premium or withdraw from a particular market. When an insurer withdraws from a particular market they stop selling policies and will non-renew policies as they expire.