What Happens After a Claim?
Whenever one of our clients submits a claim, we’ve learned to expect the client will usually ask this follow-up question, “How will this affect my premium?” It’s a fair question, considering how vital insurance is for business operations. In rare cases, an incident can jeopardize your insurability itself, or cause a spike in cost so exorbitant it kills margins. Any time spent without a definitive answer to premium-related questions can be grueling.
Unfortunately, there’s no sweeping or blanket answer I can give you to allay all your fears. However, I can help you better understand the process. We determine your premium impact based on a case-by-case analysis. From an underwriting perspective, we use what’s called a loss ratio to help determine how a loss will affect your rating. 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 (no claims, sufficient premium payments) is a “perfect score”.
The more tenure you have with the same carrier, the more premium you’ve paid to stack up against a claim. For example, if your premium is $10,000, and you’ve relied on the same carrier for 10 years. You have $100,000 of premium with that carrier. If you make a $25,000 claim, your loss ratio is only 25%. However, the client who bounces around between carriers may only have $10,000-$20,000 of premium with their current carrier. That same $25,000 loss now results in a 125-250% loss ratio, in which case, the carrier has lost money and needs to recoup it. Any loss ratio over 100% will certainly negatively impact your future premium payments.
The range of what percentages are acceptable for your carrier varies depending on the niche you’re in, whether that be fight school, corporate flight, or agriculture. Some fields are naturally higher risk than others, and the tolerance for losses can be bit higher. You’ll see the most significant premium increases when loss ratios are 150% or greater. For a rough estimate on how much you can expect your premium to change, try multiplying your premium by how long you’ve been with the same carrier and divide that total by the claim amount you filed. What’s your loss ratio? Keep in mind, your loss ratio won’t be the only factor your carrier will consider. Every renewal is still subject to underwriting input.
