Two Perspectives on Insurance Claims.
I'll agree. It is frustrating when we realize that we pay insurance for years and never see any return. (Maybe I shouldn't think about this very often.) Some people, however, have seemingly figured out how. A friend seems to get a new roof on his house every 3-5 years from hail damage. Another friend seems to end up with cash in his pocket after an auto accident. (Thoughts on insurance principles and fraud will be covered some other day.)
I recently was talking with a friend who has received a letter of non-renewal from his insurance company. The reason is that the account had too many claims over the past 3 years. Well, there were 3 claims for legitimate hail damage that included a broken window, damage to the siding, and (of course) roof damage. Then there was a claim for water from the fridge malfunctioning, which damaged the hardwood floors – and the ceiling in the room below. Oh, and don't forget the expense of evacuation and smoke damage from the recent Waldo Canyon Fire.
The four claims would push the insurance company right up to the edge of willingness to continue the relationship. But what pushed the relationship over the edge were the 4 claims that resulted in no money being paid out because there was actually no damage. This makes me think of the kid who cried wolf so much that no one listened anymore... the insurance company doesn't want to hear it any more.
I've only tried gambling a couple of times... and I wasn't victorious. I've tried predicting the future and my results were similarly disappointing. Insurance companies specialize in trying to predict the future based on past results... something individual consumers are warned about when considering investments. The only way the insurance companies have a chance to successfully (profitably) predict their cost is by segmenting their pools of risk. They organize them in such a way that they can see patterns and make fairly accurate predictions.
One of the rules for segmenting is frequency of claims. There are insurers who specialize in homes with a high frequency of claims, but they are generally not the first choice when people are shopping primarily on price. (Oh, there's another conversation for another day... price vs. value).
I recently was talking with a friend who has received a letter of non-renewal from his insurance company. The reason is that the account had too many claims over the past 3 years. Well, there were 3 claims for legitimate hail damage that included a broken window, damage to the siding, and (of course) roof damage. Then there was a claim for water from the fridge malfunctioning, which damaged the hardwood floors – and the ceiling in the room below. Oh, and don't forget the expense of evacuation and smoke damage from the recent Waldo Canyon Fire.
The four claims would push the insurance company right up to the edge of willingness to continue the relationship. But what pushed the relationship over the edge were the 4 claims that resulted in no money being paid out because there was actually no damage. This makes me think of the kid who cried wolf so much that no one listened anymore... the insurance company doesn't want to hear it any more.
The Logic Behind the Decision
At first, there seems to be no logic behind the $0 claims being a problem. But if you had the potential of losing the full value of the house on any claim, or even just $100,000 on any claim, how would you feel about having 9 opportunities to lose every bit of that money – and then some?I've only tried gambling a couple of times... and I wasn't victorious. I've tried predicting the future and my results were similarly disappointing. Insurance companies specialize in trying to predict the future based on past results... something individual consumers are warned about when considering investments. The only way the insurance companies have a chance to successfully (profitably) predict their cost is by segmenting their pools of risk. They organize them in such a way that they can see patterns and make fairly accurate predictions.
One of the rules for segmenting is frequency of claims. There are insurers who specialize in homes with a high frequency of claims, but they are generally not the first choice when people are shopping primarily on price. (Oh, there's another conversation for another day... price vs. value).
The Trade-offs
Every action has an opposite and equal reaction. Remember that? Don't forget it.
How do I walk that fine line without getting caught? Well, let me suggest: that may be the wrong perspective. If everyone insured with your same insurance company took that approach this year, your insurance would go up next year... based primarily on the law of averages.
Insurance, in my opinion, is a service to help avoid financial hardship or catastrophe. And, so, it is our responsibility to recognize how much responsibility we want to (or can) carry comfortably. When we think there may be insurable damage to our property (or someone else's), it is prudent to spend $50 for a consultation fee – and have a professional take a quick look at the situation.
One final note... if you're ever threatened with a lawsuit, or even have reason to believe that you might be sued, ALWAYS contact your agent/broker promptly... it's required in your insurance contract. And if you don't alert them, you'll not enjoy the equal and opposite reaction from the insurance company.
How do I walk that fine line without getting caught? Well, let me suggest: that may be the wrong perspective. If everyone insured with your same insurance company took that approach this year, your insurance would go up next year... based primarily on the law of averages.
Insurance, in my opinion, is a service to help avoid financial hardship or catastrophe. And, so, it is our responsibility to recognize how much responsibility we want to (or can) carry comfortably. When we think there may be insurable damage to our property (or someone else's), it is prudent to spend $50 for a consultation fee – and have a professional take a quick look at the situation.
Summary: How to Avoid Higher Insurance Premiums
- Hire a professional to take a quick look at questionable damage and provide an estimate. (Some actually offer free consultations in hopes that you'll use their services.)
- Pay for the small stuff out-of-pocket. (While you're not obligated to tell the insurance company about every bit of damage, be aware of time limitations for submitting claims.)
- Carry a deductible that you could stand to pay 2 times in a year as a worst-case scenario. Even though it would make things tight for a little bit, you'll likely enjoy lower premiums in return. (Your agent/broker should show you the math.)
- Instead of waiting for something to go wrong, be preventive... remove leaves from gutters, follow fire mitigation guidelines, test sump pumps periodically, and pay attention to signs of animals and bugs on or in your house... more on that in the weeks to come.
One final note... if you're ever threatened with a lawsuit, or even have reason to believe that you might be sued, ALWAYS contact your agent/broker promptly... it's required in your insurance contract. And if you don't alert them, you'll not enjoy the equal and opposite reaction from the insurance company.
~ Jon
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