When it comes to claims and insurance, its (dare I say) common knowledge that when you experience a claim, you can expect an increase in insurance costs. Quite often a client can feel like this is a little bit of a “slap on the wrist” for experiencing a loss, but is it?
Insurance companies know the cost to maintaining a healthy insurance business and to remain solvent so that claims can be made to their policy holders. They will look at the past number of years of how many of their customers experienced claims, what the cost was, and they will extrapolate that data into the year(s) to come in order to maintain a profit margin large enough to sustain the losses that their portfolio will encounter. This basic cost (in addition to the cost of running their business) is what goes into determining the basic rate of insurance. This basic rate is the standard line for ensuring a profitable business, which again, is how claims are paid.
Now, with that basic understanding in mind, we can talk about the exceptions to the rule which are the folks out there who are lucky enough to have never experienced a claim. This group of policy holders are the reason for insurance companies introducing the claims free discount.
Insurance companies realize and see the data on the policies that experience claims, and the ones that do not. This provides them with an opportunity to reduce the cost for those policy holders that do not experience claims, and it also gives the company a competitive advantage in their market place to earn more business. Typically, insurance companies will use a period of 3 years prior to determine whether a claims free discount will be applicable or not. If a policy holder has experienced a claim in the last three years, there will be no discount applied. However, if there is a track record of no claims, then the qualifying factor has been met for the claims free discount! Further, those who are new to carrying insurance and are first time policy holders, typically insurance companies will give a benefit of doubt and automatically apply a claims free discount!
So, next time that you experience a claim, and have a loss that is paid by an insurance company, remember that the loss of a claims free discount isn’t a punishment, nor a slap on the wrist- its simply where the basic cost of insurance has been all along, and now you are just in line with the basic cost of insuring your property. However, don’t despair either! In three years time if you experience no further claims, you will be back in discount territory once again!
If you have questions about your policy and your eligibility for a claims free discount, talk to your broker! They will be able to get this information to you and find out what additional discounts are available to you as a policy holder!