Insurance companies raise rates on homeowners insurance policies when aggregate claims rise in a region, when claims history for a particular insurance holder is a factor, when new court rulings cause previously contested claims to be paid out and in the event of claims due to property age and condition related factors. The following sections of this article illustrate why homeowners insurance companies enact rate increases for these reasons.
• Aggregate Claims can Raise Rates
Insurance companies raise insurance rates if the aggregate risk or payout in claims for a given year has risen. In other words, if a tragedy or event such as sinkholes or hurricanes hits a region with particular force in a given year, the costs for the insurance company rise and rates go up. What’s more, such costs don’t just affect the insurance holders making the claim, it can affect all the insurance holders in the area in the form of a rate increase.
• Claims History Factors into New Policy Rates
Other reasons a homeowner’s insurance policy premium may rise could be due to a claim history on previous homeowners insurance policies. For example, if person A makes a claim in 2007 on a damaged roof from a lightning strike his or her insurance company may not raise rates. However, when person A moves into a new home in a different state, the new insurance policy may take into account previous claims as a factor in assessing the rate on the new home using probability modeling or cost algorithms.
• Court Ordered Claims create Precedence
The results of insurance pay outs ordered by court decision can cause rates to rise. This can happen because the outcome of the court ruling can create precedence for future claims decisions and court cases. In effect, such court rulings can create new forms of coverage that were previously thought not-covered by the insurance policy and company. The result to such claims supported by the court can lead to rate increases.
• Claims related to Age and Condition of the Home
Another type of claim that could cause insurance companies to raise rates is a claim resulting from age related property damage that could cause future claims to be made. For example, if a property has 35 year shingles that have reached the end of their life and the homeowners does nothing to replace them this could lead to an related insurance claim. Furthermore, if the homeowner continues to do nothing about the shingles and just repairs the damage with claim the insurance company may raise rates in anticipation of higher risk and probability of future claims.
In many cases a homeowners insurance company will not raise rates due to a claim. However, as this articles has discussed, there are several unique circumstances and claims related events that can cause insurance rates to rise. Typically those reasons are an increase in total claims payouts for a region, policy-holders claim history, court rulings and claims related to changing property conditions over time and due to lack of maintenance. Lastly, despite the possibility an insurance company may not raise rates due to a claim, they may have clauses and rights within their contracts to raise rates or cancel policies if they reassess a property as being too high a risk following an insurance claim.
Sources:
1. http://bit.ly/cLY1rB (Wisconsin Insurance Commissioner)
2. http://bit.ly/a7bZdy (CBS Business Network)
3. http://bit.ly/94mYyH (University of Illinois-Urbana-Champaign)