While a home or auto insurance policy can offer peace of mind when unexpected damage arises, the filing of too many claims in a short period of time can lead insurers to raise your premiums or, in some cases, to not renew your policy at all.
The purpose of insurance is to pay for disasters that would bring financial ruin to most people, according to the Insurance Information Institute. It’s not meant to pay for everyday repairs. If a policyholder seeks to recoup money from a multitude of minor mishaps, insurers are likely to raise the policyholder's premiums to get their money back, a fact that many policyholders don’t realize, Pennsylvania Insurance Commissioner Michael Consedine says.
Consedine warns home insurance policyholders that they might be better off paying for repairs out of pocket if they’ve already filed a claim in the past couple of years since many insurance companies impose a surcharge if numerous claims are filed during a three- or five-year period.
In some cases, policyholders may find themselves without a policy at all after filing too many claims. There are three ways that an insurance company can drop a policy:
• Cancellation is when your policy is terminated while the policy is in effect.
• Rescission is when your policy is not only terminated, but it’s voided back to the first day of the coverage period and the policyholder’s money is refunded.
• Non-renewal is when an insurer chooses not to extend your policy beyond the expiration date.
To cancel or not to cancel
Laws vary from state to state regarding acceptable reasons for an insurer to cancel or to not renew a home or auto insurance policy. Some states have restrictions on cancellation or recession. For example, in Pennsylvania, it is illegal for an insurer to cancel a home insurance policy because of the claims or loss history.
However, when it comes to an insurer choosing not to renew a policy, the rules in some states may be more lenient. For example, in Maine, an insurer must have “a good faith reason” that’s “related to the insurability of the property” to not renew a property insurance policy. Likewise, insurers in that state can decide against renewing an auto insurance policy if a driver has had two or more accidents in three years that resulted in bodily injury or property damage surpassing $1,000 for each accident.
That’s what happened to Mike Seney of Oklahoma City, Okla., several years ago. First, Seney’s car was stolen and found trashed. About a month later, his newly licensed son was involved in an accident with the family’s new car. One month after that, Seney’s son was a passenger in a car accident and ended up with a major back injury and the family’s uninsured motorist coverage kicked in.
“Within about a three-month period, the insurance company had three major loss claims on us,” Seney says.
As a result, the insurer who Seneys had used for more than 20 years did not renew their auto insurance policy. Although they easily found another insurer, “we had to pay a bit more,” Seney says.
If your insurer terminates your coverage, check with your state insurance regulator to make sure it was done so legally. If you think the insurer did not have legal grounds to do so, you can file a complaint.
For example, in Pennsylvania, the state Insurance Department's consumer services staff will launch an investigation, spokeswoman Melissa Fox says.
“If the insurance company was following the letter of the law in the non-renewal, the decision will be upheld. If, however, our unit discovers that the non-renewal did not follow Pennsylvania state insurance laws and regulations, the policy would be reinstated,” Fox says.
If you’ve filed a lot of claims and think you will gain a fresh start with a new insurance company, think again. Insurers can get an idea of a consumer’s past auto insurance claims history by looking at his or her driving record. When it comes to property damage, databases such as LexisNexis’ CLUE Home Seller’s Disclosure Report tracks insurance losses at a particular home address for the previous five years regardless of the insurance provider.
The moral of the story: Every claim you file could affect the price you’ll pay for insurance in the future.
While there are some cases when filing a claim can’t be avoided, consider the long-term implications before filing claims that you can financially handle yourself, Consedine says.