This article has been updated from a previous version.
The importance of ‘the home’ cannot be overstated. It’s where we go at the end of a long day; where we host friends, raise our families, and make memories. And more often than not, it’s the single largest purchase of our lives.
Given the outsized role it plays in our lives, it’s no surprise that we need to protect our homes. Plus, there’s no shortage of things we need to protect them against, including fire, water damage, falling trees, hail and theft.
Here’s a look at what homeowners can expect when making a claim:
Claims matter — but it’s hard to predict
Every home insurance claim has a direct impact on your premium. However, it’s hard to predict how much that impact will be. The exact amount your premium will increase following a claim is not as straightforward as it once was.
These days, insurance companies use algorithms to weigh factors such as the type of claim and payout amount, as well as an array of other considerations when determining just how much someone’s premiums should rise after a claim.
“The complexity has grown,” says Matt Alston, cofounder of SurexDirect. “In the past, it was a simple yes or no to whether a claim was filed. Now, companies are employing more sophisticated approaches. They want to know the type of claim and payout amount. Five years ago, it was more straightforward. Now, if it’s a $2,000 water claim because a water heater blew out versus a $30,000 hail claim, the difference significantly affects the premium.”
Because of the sophisticated algorithms that insurance companies now use to determine rate changes, brokers are less able to forecast the aftermath of a claim and inform homeowners exactly what to expect upon renewal.
“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.”
Another factor is a customer’s credit score, which can change at any moment.
“So, it’s making brokers’ jobs harder to say, ‘This is exactly how much your price would go up next year,’” adds Alston.
Frequency matters — less is more
Peril scores — e.g. home location, claim types — aren’t the only determinants of premiums. It’s also about how many claims you’ve made in the past.
While the ideal number of claims remains subjective and varies by insurance providers, in general, fewer claims equate to a lower risk profile. Being labeled a repeat claimant can jeopardize insurance renewals at a reasonable rate.
“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,” says Alston. “But if you have too many claims, nobody will actually accept you.”
Alston says that the home insurance industry is stricter about who they insure than auto insurance.
“In auto insurance, it’s a lot more regulated by the government,” he says. “Whereas with home insurance, companies can just say, ‘No, we don’t want the business.’ It’s hard to find a carrier for somebody who’s had two claims in the last three years.”
Clarifying claim versus inquiry
Two terms that often create confusion among homeowners are 'filing a claim' and 'making a policy inquiry.'
Filing a claim refers to the process of formally requesting coverage for a loss or damage covered by your policy. This is typically initiated when an unforeseen event, such as a burst pipe or a tree falling on your roof, requires financial assistance from your insurance provider.
However, making a policy inquiry involves seeking information about your coverage, potential policies, or understanding specific terms within your existing policy. This could be prompted by curiosity about coverage options, a desire for policy adjustments, or simply seeking clarification on certain aspects of your coverage.
Why does it matter whether you're filing a claim or making an inquiry? Filing a claim has a direct impact on your claims history and, subsequently, your premiums. On the other hand, making an inquiry is more like a conversation with your insurance provider. It allows you to gather information and make decisions without triggering significant repercussions.
Safeguarding your premium: Claims protector
One way to avoid being seen as a serial claimer is to purchase a home insurance claims protector. This coverage functions similarly to accident forgiveness in auto insurance, allowing policyholders to make a single claim without facing a premium increase.
“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.”