Why Did My Insurance Premium Increase After a Claim?
For years, you faithfully paid your insurance premiums and never had a claim. Then one day, BAM! The unexpected happens and you turn to your carrier for assistance. They pay for the repairs and you are able to get on with your life. Then comes your next bill and an unpleasant surprise. Your premium has jumped. What happened? You paid for all those years and now they’re trying to get their money back?
Provided nothing else changed (ie no changes to your coverage, no carrier overall rate increases, etc.) you may have been “surcharged” for the claim. This means that one of the many factors that goes into determining your rate has increased, so your premium has gone up. Many carriers have some type of accident forgiveness that will permit a small number of claims (usually one) before surcharging you.
But why are you being surcharged? A surcharge based on your claims history is an estimation of your likelihood to have future claims. An insurance carrier is not permitted to “claw back” the money they paid you for a claim. However, the risk of you having another claim has increased and therefore, the carrier needs to collect more premium for the additional risk.
Does having a claim make a person more likely to have another claim? Not really, but…
Let’s say you have a group of 2,000 people. 1,000 of them, let’s call them Group A, have never had a claim. Group B of 1,000 people have each had one claim in the last 2 years. In the upcoming year, which group do you expect to have the most claims? I would guess Group B.
That’s not to say each member of Group B is going to have a claim or that each member of Group A won’t have a claim. However, it is more likely, based on history, that in the coming year there will be more claims in Group B than in Group A.
In order to account for the higher risk in Group B, they will see an increase in their rate. If they go a certain period of time (usually two years) without a claim, they’ll move back into Group A.
Review your policy with a professional insurance agent before an accident occurs. Talk with them about accident forgiveness to see if it’s right for you.