The importance of ‘the home’ cannot be overstated. It’s where we go at the end of a long day; where we host friends, grow families, and make memories. And it’s the single largest purchase of our lives.
So it’s no surprise that we need to protect our homes, and there’s no shortage of things we need to protect them against, including fire, water damage, falling trees, hail and theft. Like with car insurance, making a home insurance claim will almost always affect your premiums.
Here’s a look at what homeowners can expect when making a claim:
Claims matter — but it’s hard to predict
It’s safe to say that every home insurance claim has a direct impact on your premium. However, the amount your premium will increase following a claim is not as straightforward as it once was.
“Claims definitely affect rates,” says Matt Alston, Co-Founder of SurexDirect. “But it depends on the type of claim and the claim amount payout. Some companies are being sophisticated now, where five years ago it was more simple: Was there a claim filed? Yes or no? Now they actually want to know the payout amount. So if it was a $2,000 water claim because a water heater blew out versus a $30,000 hail claim, that affects the premium.”
And because of the sophisticated algorithms that insurance companies are now using to determine rate changes, brokers are finding it difficult to tell homeowners exactly what to expect.
“Some companies look at hundreds of factors,” explains Alston. “Claims is definitely one of those factors, but it’s harder to guess on how much it’s going to affect because it’s so personalized now. It’s not just based on you as a person — and the risk profile you have — but your location. If you live in an area in Alberta that’s more prone to hail claims and you file a hail claim, your rate could go up significantly more than living in Northern Alberta, where maybe forest fires are more of a peril score. Added on top of that is credit scoring, which it seems now like some companies have a black box that they do. So it’s making brokers’ jobs harder to say ‘this is exactly how much your price would go up next year.’”
Frequency matters — less is more
It’s not just based on the peril scores — e.g. home location, claim types — it’s also about how many claims you’ve made. The number of claims homeowners can safely make differs based on who you’re talking to. Some experts say insurers expect homeowners to make fewer than one-to-two claims per decade, whereas others put the magic number at a handful of claims in a five-year period. Like with the peril scores, it’s difficult to determine accurate numbers (and the numbers change by insurer), but the takeaway is clear: if you’re labelled as a repeat claimant, you’re seen as a risk, and if you’re seen as a risk, it’s hard to get renewed at a reasonable rate (or renewed at all).
“If the insurance company raises their rate too much, then we can obviously re-shop the customer and move them on renewal to save them money, but if you have too many claims, nobody will actually accept you,” says Alston. “In auto insurance, it’s a lot more regulated by the government. Whereas with home insurance, companies can just say ‘no, we don’t want the business’. It’s hard to find a carrier for somebody that’s had two claims in the last three years.”
One way to avoid being seen as a serial claimer is to purchase a home insurance claims protector. This works like accident forgiveness with auto insurance — a sort of mulligan that allows you to make a single claim without affecting your premium (or your reputation).
“The only way your rate won’t go up after filing a claim is if you have claims protector coverage on your home,” says Alston. “Claims protector is one thing we definitely recommend. It’s worth the $30 of $40 a year — it protects you.”