Badly damaged roof from a downed tree! Does that look bad? What’s behind the picture?

Your badly damaged roof from a downed tree may make you furious, but it won’t be nearly as bad as the hike in your insurance premium after you make a claim.

Roof Damage ClaimThis is especially true if you live in certain states where a single home insurance claim can noticeably increase your annual premium. To add insult to injury, you may not have known of CLUE also known as the ‘National Claims Database’ where all insurance carriers report claims as soon as a claim report is taken;  once a claim has been reported,  there may be cases where you only wished you had known the process before hand and at least had a better understanding of the purpose of insurance.

Yes, insurance covers damage from multiple perils, it may provide replacement cost, loss of use and many other related items leading to ultimate peace of mind.  But if we were only to insure a broken window, a stolen computer, a fence which was blown over, damage from a small fire in a shed etc…,  perhaps, we would self insure and simply save the premium in a savings fund!

Many customers mistakenly think that incidentals are covered because that’s why they have home insurance. The reality is that one should understand the principle and purpose of insurance providing security from unaffordable risk.

Home insurance policies are underwritten carefully at the time of first purchase;  the insurance company will check the Claims Database to review the claims history on the insured customer as well as the subject property;  this data may provide information which may help the carrier avoid adverse risk.  In addition, the underwriter will order an independent inspection of the property in order to avoid insuring any known risk thereby providing the pool of insured homes a possible lower loss ratio thereby guarding from unnecessary rate hikes due to avoidable losses.

It is in the interest of insurance carriers to keep premium rates as low as possible and retaining customers for as long as possible. The cost of client retention is far less than the cost of new client acquisition. Underwriting is a process used to review and verify risk as it remains on the company’s active records. With the future of insurance automation upon us,  many rating and issuance programs have automated many of the underwriting steps in order to avoid adverse risk prior to policy issuance.

For instance, a great risk in Southern California is the proximity to Brush Hazard in the known Fire Areas in the mountainous regions where many residential communities lie; insurance carriers are now running automatic geographic checks using a very advanced database specific to a single property address to immediately decipher the level of risk and possibility of rejecting the risk prior to quoting. As a consumer, it would be much more advantageous to  have a quote rejected than to receive a quote, buy the insurance and simply receive a cancellation letter from the carrier a month after buying your new insurance policy.

Likewise, many advanced systems are now running the Claims Database automatically upon receiving input from the customer that a policy needs to be issued.

Not only the number of paid claims are of importance, a claim that has been denied is equally important and informative to the carrier.

There are a number of rating factors that directly influence the premium of your homeowners insurance and it is primarily determined by your geographic area. Other issues, like the size of your deductible, your loyalty to the insurer, your credit history and miscellaneous credits will play key parts too in most states. Then we have the dwelling itself. What is the year built? How large is the home? Is there a pool or a diving board? Do you have a burglar alarm? A fire sprinkler system?

If clients understand the inner workings of an insurance policy, there is no doubt that different choices would be made regarding coverage, deductible and method of payment. Against all belief, it is in every person’s interest for the premium to remain as low as possible. Many clients avoid asking the necessary and important questions at mind in order to avoid hearing a sales pitch from an insurance agent. In fact, there are few traditional insurance agents left;  most agents are employees of insurance carriers or processing agencies simply responsible for answering questions to keep the system flowing. It is seldom to bump into a traditional ‘insurance salesperson’!

An important reason filing insurance claims can backfire: insurance companies keep track of policy history and apply discounts accordingly before deciding whether to insure or renew a policy. A long claims history, or even a spotty history of making claims sends up red flags that the pattern will reoccur. This could mean that the carrier may avoid the risk altogether or begrudgingly handle but at a steep premium.

Insurance companies use Comprehensive Loss Underwriting Exchange to view your claims pattern. CLUE, as it is commonly known in the industry, is a summary of all the personal property claims made over the last seven years.

Insurance companies report all claims even those that are formally denied. That is why it is important to review and understand your coverage prior to filing a claim.

The report then contains this information on each claim:

  • Insured name
  • Policy number
  • Type of loss
  • Description of the covered property
  • Date of birth
  • Date of loss
  • Amount the company paid
  • Property address

One can get a free copy of his/her CLUE report by filling out documents here. Be prepared to make copies of some form of identification and a major bill statement. It is a good idea to obtain a copy once a year to review any derogatory information that may be filed.

So when should you file a claim? Here are some rules to follow:

  • Never file if the damage is smaller than the deductible. Even if the damage is greater than the deductible, one must consider the risk and reward. For instance, is it worth gaining $200 and earning a claim on your record which will remain a minimum of 5 years and will be charged against you for at least 3 years.
  • Make sure you’re covered for the claim. Flood damage and Earthquake damage are not usually covered on homeowners insurance policies. Separate coverage forms are available for those interested in insuring against those perils.
  • When did you last file a claim? If you consistently claim, you will either get a huge rate increase or get non renewed. It is unusual for a homeowner to file more than two claims in a ten year period.