To File a Claim or Not to File a Claim (AKA: Things Your Current Agent May Not Have Told You)

So, today I had to tell a nice couple that I could not write their insurance policy because they are high risk. They’ve owned their home for four years and have made three insurance claims within that time. All the claims have been for wind damage to their roof. Most standard insurance companies will not write a new policy if you have two or more claims of any type within the last 3-5 years (depending on the company). This particular couple is currently with a non-standard carrier (which is way more expensive from a premium standpoint) and will have to stay there until more time has passed between them and the claims they have filed.

Now, I know what you might be thinking, “Isn’t this why I have insurance? So that if something happens, I will be covered!? Why shouldn’t I be able to file claims?? Plus, this couple’s claims were all weather-related! These events were out of their control!” All that is true, but insurance is all about managing risk. When an underwriter considers writing a policy, they have to consider the risk versus the reward. If you have a history of filing claims, the payout on the claims is very possibly not going to be worth whatever you would be paying in premium. That’s not a good risk for the insurance company, so the underwriter turns you down. The answer to this conundrum is to limit your risk to remain attractive to an underwriter and keep your premiums at a reasonable level. You do this by being willing to retain some of the risk yourself. Sound confusing? Let me explain.

The husband told me that this is their first home. It wasn’t long after they bought it that the roof started leaking. So, they figured they needed to get the roof replaced, filed a claim with their insurance company, then called a contractor. Here’s the thing, though. The roof did not need to be replaced. It only needed one small repair. So, the amount of the claim was barely over the amount of their deductible and the insurance company only paid out around $300, a small amount they could have easily covered themselves. It’s still a claim, though, and stays on their record. Not a big deal, until you follow that up with another roof leak within a year (that did lead to the roof being replaced), and then a tree that came crashing through their garage shortly after that.  Yeah, talk about bad luck. The husband told me that with the gift of hindsight, they never would’ve filed that first claim. The $300 check they got isn’t worth the increase in premium they are paying now because they are high-risk.

But, this was the couple’s first home. They didn’t know the ins-and-outs of homeowners insurance. Their agent should have helped them understand the process before they ever filed that first claim. It is up to the insurance agent to educate their clients so that they can make informed decisions about whether or not they want to file a claim. Most insurance agents don’t do that though. You say you want to file a claim, it gets filed, and then down the road you are stuck with your carrier, can’t save money on premiums, or even worse – get dropped – which leads to even higher insurance rates. Ugly downward spiral.

A good insurance agent will tell you to call the contractor first, before you file the claim. A good contractor will assess the damage to your home, and give you a repair estimate free of charge (or for a deferred charge). Then, you can use that information to decide if you really want to file the claim, or pay for the repair yourself.  In some cases, the repair will end up being less than your deductible. If you had filed that claim, you would get zero dollars from the insurance company, but the claim would still be there – making you look riskier to an underwriter. This is what I mean by retaining risk. If it’s in your power, pay for the small stuff yourself, and save your insurance coverage for the things that are not in your power to fix. That’s why you have insurance. To cover your assets in a pinch.

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