How Filing a Claim Affects Your Premium
Following a claim, one of the most common questions, naturally, is “How will this affect my premium?” It’s certainly a fair question, especially considering how vital insurance is to the operation of your business. In rare cases, insurability itself can be jeopardized, and in others the cost can be so exorbitant it kills margins. There’s no sweeping or blanket answer to the question. It’s very much a case-by-case analysis.
From an underwriting perspective, the biggest factor in how losses impact rating is what’s called a loss ratio. The loss ratio is a simple calculation of the amount of claim dollars against the amount of premium, expressed as a percentage. Therefore, a 0% loss ratio is a “perfect score.” This also highlights the importance of carrier tenure, because the longer you’re with the same carrier the more premium you have to stack up against a claim. Example: Your premium is $10,000 and you have been with the same carrier for 10 years.
You would have $100,000 of premium with that carrier. If you have a $25,000 claim, your loss ratio is only 25%. However, the person who bounces around may only have $10,000–$20,000 with their carrier. The same $25,000 loss now means they have a 125%–250% loss ratio. Anything over 100% will certainly have a negative impact on future premiums because it means the carrier has lost money on you. Percentages vary depending on the niche you’re in (i.e. flight school, corporate, agriculture, etc.), and some fields are higher risk than others so the tolerance for losses may be a bit higher.
The most significant premium increases come when loss ratios are 150% or greater. Knowing your premium and knowing how long you’ve been with the same carrier can give you a very rough estimate of the premium expectation following a claim.
Keep in mind that every renewal is still subject to underwriting input, so just remember that this is meant to be a very general guideline.