Why policyholders should treat their insurance policy as the last resort

 

For the last few years, my insurance agency has received numerous quote requests from customers that were non-renewed or did not agree with their premium increase.

My agency classified these policyholders into 2 different groups:

1:  Policy holders that accepted the higher premiums and purchased a policy with no gap in coverage

2:  Policyholders that could not accept the higher premium and decided to go without coverage.

A policy holder should minimize their exposures and avoid filing claims by practicing safe risk management techniques.

A:  Requesting  a certificate of insurance from your tenant and or contractor naming you as additional insured on a primary and non-contributory basis.  If you receive a proper certificate of insurance, this could alleviate you from filing a claim on your own policy.  For example, a condo association with many residing at the same location.  A unit owner forgets to close her balcony door leading to burst pipes because of the frigid weather.  This resulted in water damage from her unit all the way to the 1st floor.  If the association is named as additional insured on a primary and non-contributory basis, the association can go after her liability to pay for any damage caused to the common areas.  In summary, an association or any entity should not be responsible or held fiscally accountable for someone’s neglectful living habits.

Policyholders are often advised to treat their insurance policy as a last resort for practical financial reasons—not because insurance shouldn’t be used, but because how and when it’s used can have long-term consequences.

Here are the main reasons:

1. Claims can increase future premiums

Even small or “not-at-fault” claims may lead to higher premiums at renewal. Over time, those increases can cost more than the claim payout itself.  For example, frequent claims are filed but claim is closed without payment.  This poses a larger threat to an underwriter than having one paid claim.

2. Frequent claims can affect insurability

Multiple claims—especially small ones—can flag a policyholder as high risk, making it harder or more expensive to renew or shop for coverage later.

3. Deductibles reduce the benefit

If a loss is close to the deductible, the insurer may only pay a small amount, making the claim financially inefficient to file.

4. Insurance is designed for major losses

Policies are structured to protect against severe, unexpected financial hardship, not routine or manageable expenses.  As many Midwestern policyholders have noticed, carriers have introduced a 1%,2%,3% or 5% deductible for wind and hail as many have filed roof claims in the last few years.

5. Claim are on your record for 5 years

Claims are typically reported to industry databases (such as CLUE), and remain visible to insurers for years, even if no payment is made.  Usually a carrier requires 5 year updated loss runs in order to be eligible for a preferred company program and to bind a policy at a preferred rate.

6. Some claims can trigger underwriting review

A claim can lead to:

• Coverage restrictions

• Higher deductibles

• Non-renewal in certain situations

• Compliance & Mandatory Recommendations to be made in a short amount of time-updating or correcting a hazard. What actions has policyholder made to rectify the situation?

In Summary, Policyholders should treat their insurance policy as a last resort because claims—especially small or frequent ones—can raise premiums, impact insurability, and cost more over time than paying out of pocket.