I’ve had my house and car with an insurance company for eight years and this past weekend, lightning struck twice (sort of). Not only did I have a fender-bender with my car (minor damage and thankfully nobody was hurt), but I also lost some roof shingles in a windstorm. After paying premiums all these years, I feel like I should get something back for my money and put through the claims, but a friend told me she once made a small claim and ‘paid the price’ at renewal. Can you give me some advice on whether to claim or not to claim?
John from Toronto
It’s a straight math equation, in my mind; it’s a financial transaction. You need to quantify how much benefit you’re going to receive in the claim: Is it a $100 claim or is it a $10,000 claim? Then you need to take into account how much your premium is going to increase the next year and for how many years it will stay increased.
So, if this is your first claim on a house inside of three years, realistically, all you’re going to have is a 10% increase with the loss of your claims forgiveness discount. If you were talking about a second claim in three years, you’re probably looking at your price doubling—as you’re usually going to get kicked out of the regular market and you’ll be into high risk home insurance.
Once you start looking at a third claim in three, or even five years, you can have difficulty being able to find insurance. You will normally be paying a significant rate for much reduced coverage.
An advantage of dealing with a broker is they can advocate for you with the insurance company in cases that aren’t so black-and-white. Sometimes a broker can ask a market to look at a problem creatively for a longtime client whose maybe been there 20 years. Although they’ve had a string of bad luck in the last three years, as a whole, they’ve had really good claims experience for a long period of time.
For a first property loss, there is normally financial justification to go ahead and make the claim.
With the automobile insurance, an accident can impact your rating for a lot longer, cause now insurance companies could be rating you for up to 20 years. To figure out whether it makes sense to claim or not claim, you really want to think about whether it’s ‘at fault’ or not, based on regulated fault rules. Is this one going to be rated against you, or isn’t it? The other thing that comes into play for rating is, do you have accident forgiveness? And if you do, have you already used it? Or, are you soon going to be eligible for it?
Once you use accident forgiveness, you’re also stuck with that particular market for some time. Although they may keep you at your six-star rating until you earn ‘claims free’ back, if you move to another company and they ask you the fated question:
How many years have you been driving accident-free? And you have to say
zero, that means you get a zero-star rating and you’re clawing back one star for each year you go crash free. Most of your savings are realized at six or seven years, but now companies are sub-dividing those final stars so that it can go for nine years, and up to 20 years with some companies.
There is also the matter of a claims frequency issue that could force you into a higher risk, higher premium market. With auto insurance in Ontario, it’s all ‘filed rules‘ so there is no underwriting discretion as to whether an insurer keeps somebody or non-renews the policy due to the claims history. It’s all based on the book of rules each company files with the government regulator.
The other piece I think you need to take into consideration for property or auto is the deductible. Is your deductible $100 or $5,000? You can’t get the really low deductibles anymore. Some people are ‘grandfathered‘ in with $100 or $250 deductible, but $500 and a thousand are a lot more common. Some customers choose to take a higher deductible to keep their premiums down a little.
I think it also depends on how you’re going to treat the policy. If you would never think about claiming a thousand-dollar loss on a policy, then you should probably keep at least a $1,000 deductible so that you save a little bit of money in premium. There’s no point in having a lower deductible than what you are willing to contribute to a claim.
Some people may not realize the deductible gets waived in the event of a total loss for a property claim. So, if you’re involved in a serious fire loss, for example, the deductible may not apply.
An important benefit your broker adds is in the area of claims consultation. Being able to talk to somebody about your particular situation and about your options. At certain times, it might not make sense to file a $2,000 fender bender claim. Maybe that’s because you want to add your son or daughter to the policy, or you’re planning on moving, or you need different options, and you’re concerned about overall cost. There’s an advantage to having someone who understands the nuances of your situation and the market, and can mesh the two together.
Unfortunately, if you’re buying insurance directly and you call to have a conversation, the conversation goes on the record. While there’s regulation around auto insurance—with claims open and closed below a certain value, not being ratable—that doesn’t apply to your house insurance. If insuring with a direct market, you can’t always have the confidential conversation you can have with an independent broker about what may be best for you and your family.
It will often make sense to file the claim. There may be a customer who says,
for a $2,000 claim, it’s not worthwhile, I shouldn’t put this through, and you’ll have the broker say,
no, you paid for it, you may as well use it, cause there’s no real downside in this case.
It’s the medium size claims that are trickier. Most people know that the $100, $200, and $500 dollar claims—or anything near or below the deductible—are not going to be worthwhile. And anything over ten or twenty thousand dollars is money most people don’t have sitting around. It’s those small to mid-range claims that often benefit from discussion: Is this $1,800, $2,000 or $2,500 claim worthwhile?
There are many variables, but it can be well worth a discussion with your broker. The Mitchell & Whale team is happy to help.