Will filing that insurance claim increase your premium rates?

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Published: March 27, 2017 11:18:42 AM

When Delhi-based Rahul Saxena’s new car met with an accident recently, he looked very much depressed. After all, Saxena had got his car just one month back and being his first vehicle, he had also got emotionally attached to it. However, when Saxena took his car to the nearby repair shop, he seemed to be in a sort of dilemma whether to file a claim or not.

Financial experts say there is no set rule for making an insurance claim, although it makes sense to do some homework and keep some basic facts in mind while claiming on your insurance.

When Delhi-based Rahul Saxena’s new car met with an accident recently, he looked very much depressed. After all, Saxena had got his car just one month back and being his first vehicle, he had also got emotionally attached to it. However, when Saxena took his car to the nearby repair shop, he seemed to be in a sort of dilemma whether to file a claim or not.

One of his friends advised him to skip filing a claim and instead pay for the repairs out of his own pocket simply because the car had got only slightly damaged and getting it repaired was unlikely to cost him much. Saxena was, however, not convinced. Since the car was insured, it was surely his right to make a claim. But he was also worried about the after-effects of making a claim — would doing so adversely impact his claim history and even raise the premium rates at the time of renewal? If not so, then he would at least lose his ‘no claim bonus’ after filing a claim. No wonder, it took Sharma the entire day just to take a decision on what to do in this case.

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Like Saxena, many of us sometimes find ourselves in a similar situation. Should we or shouldn’t we – that’s the kind of predicament we seem to be facing while making a claim – whether for car, home or anything else. True, there’s that nagging feeling that this is what we pay our premiums for and we deserve to get something back in return. At the same time, however, there’s also the fear that filing insurance claims too often may adversely impact our claim history, resulting in higher premiums, loss of coverage and in some cases having difficulties obtaining new insurance. So, this brings us to the moot point – when to make a claim and when to simply skip that.

Financial experts say there is no set rule for making an insurance claim, although it makes sense to do some homework and keep some basic facts in mind while claiming on your insurance.

Does making a claim raise premium rates?
Although it is not necessary that filing a claim will necessarily increase the premium rates, however, adverse claim history is one of the factors that impacts the rates of premium. Also, insurers can even deny the renewal of a policy if there are continued losses year after year on the insured risk or no due diligence is observed by the insured to avoid the repeated losses. Renewal of a policy can also be denied if someone has made a fraudulent claim.

“This is a wrong perception that filing of insurance claims may lead to the denial of a policy renewal. The fundamental behind the insurance contract is that the company will take care of the financial loss in case of unexpected risks and hence a claim cannot be the ground to deny a policy renewal. However, in case the insured is found to have made a fraudulent claim, the insurer may deny the renewal,” says Manohar Bhatt, Chief Business Head-Motor, Bajaj Allianz General Insurance.

Bhatt says that the rates of insurance policies are not based on a single claim experience. However, if a particular customer files multiple claims as a result of poor risk management practices, the insurance company may review the risk and rates of the policy.

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When are premium rates raised?

Insurers say that the premium rates for insurance plans are always in line with company’s risk underwriting practices and the guidelines issued by the regulator. The rates are decided basis the severity of risk. In case of home and health insurance policies, for instance, insurers periodically review the product performance and rates are reviewed on the basis of the product experience.

In case of motor insurance, rates are generally increased under the following circumstances:

# Increase in Third Party premiums

# Increase in service tax

# High severity of losses in the region. For instance, regions which experience higher claim frequency and severity may command higher premium for insurance policies as compared to other regions.

Also, making a claim directly impacts the no claim bonus (NCB – which is a discount given by an insurer to the policyholder on the own damage premium for every claim-free policy period) in case of motor insurance.

Even in case of mediclaim, most of the old policies attract loading in case of a claim, whereas the new generation covers, which are available now, have the benefit of having no loading for any claim, which is a fair way of taking an insurance policy, say industry experts.

“In health insurance, the rate doesn’t go up now only because someone has made an insurance claim. As per regulation, you cannot deny the renewal of a policy on the basis of the claim history. Also, insurance companies cannot load only those policy holders who have made insurace claims. Any rate revision happens at the portfolio level of an insurance company. However, in home insurance, if the policy has been given on a group platform such as a housing society, then rates can be revised upward on renewal if there are high value claims, but then again rates are not increased due to the claim made by a particular policy holder,” says Nikhil Apte, Chief Product Officer, Royal Sundaram General Insurance Co Ltd.

When can the renewal of a policy be denied?

Insurers say they usually do not deny the renewal of any insurance policy. However, if the customers are found indulging in illegal or fraudulent activities, misrepresentation of facts, or non-cooperation, they may deny the renewal of health insurance policies and comprehensive policies in motor insurance. Similarly, “in home insurance, if a general insurance company has withdrawn a particular product due to unavailability and has followed necessary regulatory procedure in the withdrawal of products, then the renewal can be denied if the company doesn’t have any equivalent product to offer,” says Apte.

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When to claim and when to avoid
As explained above, in case of home and health insurance, premium rates are not usually increased, while in case of motor insurance, a rise in third party rates, applicable deductibles (which is the amount that you will bear in case of a claim), as well as the application of NCB rates usually impact the premium.

Experts, therefore, advise policyholders to avoid filing a claim for smaller amounts (within deductible) as it adversely impacts the claim history of the insured as well as it raises the premium.
For example, if the claim amount is Rs 3000 and the applicable deductible is Rs 1000, then the amount payable by the insurer towards the claim will be only Rs 2000. Here the policyholder is not getting the full claim amount as well as he is going to lose his applicable NCB — which helps one avail a discount ranging from 20-50% on the own damage premium — on renewal premium. Hence he should avoid filing such claims.

In another case, say, your policy has a deductible (also known as excess) of Rs 2000 and no claim bonus on the policy is, say, Rs 8000. Thus, if you make a claim, you will have to pay Rs 2000 as excess and also lose your NCB discount of Rs 8000. In this case, if the claim amount is more than, say, Rs 10,000, then only you should consider going for the same. But that too if the claim amount is, say, Rs 15,000 or more than that. However, if the claim amount is, say, Rs 12,000 (which is slightly more than the amount of deductible and NCB), then it should be better repaired on your own.

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The reason being that apart from losing your future discounts and other benefits, your reputation as a safe and responsible driver is also going to be at stake. For, every time you file a claim, insurance companies take note of that – regardless of whether the fault was yours or that of somebody else. This also affects your driving history.
“A customer should avoid filing a claim if the quantum of loss experienced by her/him in a claim is less than the amount s/he would save during policy renewal especially by way of NCB in case of motor insurance and cumulative bonus in case of health insurance. By keeping no claim and cumulative bonuses intact, customers can utilize their benefits in future claims,” says Bhatt.

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