If You File a Homeowners Claim Does Your Insurance Go Up?

Homeowners insurance provides financial protection for a dwelling and personal belongings against various perils, while also offering liability coverage for accidents on the property. Many homeowners wonder about the financial implications of utilizing this protection, specifically how filing a claim might influence their future insurance premiums. Understanding these potential impacts is important for making informed decisions when property damage or loss occurs.

How Homeowners Claims Affect Premiums

Filing a homeowners insurance claim generally leads to an increase in premiums. Insurers assess risk, and a policyholder’s claims history serves as a significant indicator of future risk. When a claim is filed, it signals to the insurer that the probability of future claims from that property or policyholder may be higher.

Insurers use actuarial science to calculate premiums by analyzing data to predict the likelihood and cost of future events. A past claim indicates a greater statistical chance of another claim occurring, leading the insurer to adjust the premium to account for this elevated risk. This adjustment helps the company recoup potential future payouts and maintain financial solvency.

Premium increases typically take effect at the policy’s renewal, not immediately after filing. While a single, minor claim might not always result in a substantial increase, larger claims or frequent filings can lead to more significant adjustments. Insurers perceive policyholders with a history of claims as higher risk, making them more likely to incur future costs.

Premium increases can also occur even without a personal claim, especially if many claims have been filed in the geographic area. For example, if a neighborhood experiences a surge in break-ins, all homeowners in that area might see rates rise due to the increased risk profile of the location. The continuous evaluation of risk, based on individual claims history and broader environmental factors, drives premium adjustments.

Key Factors Influencing Premium Changes

A homeowners insurance premium increase after a claim depends on several specific factors. Understanding these elements helps policyholders anticipate potential changes.

Type of Claim: Some perils are viewed differently by insurers. Non-weather-related water damage (e.g., burst pipes) or liability claims (e.g., dog bites) often lead to higher premium increases, suggesting ongoing risks or negligence. Claims from catastrophic events like severe weather may have less impact if they are less likely to reoccur or are unavoidable.
Claim Frequency: Multiple claims, even for smaller amounts, typically affect premiums more than a single large claim. Filing several claims within two to three years signals higher risk and can lead to substantial premium increases or policy non-renewal.
Claim Severity/Cost: A claim with a high monetary payout generally leads to a more significant premium increase. Fire damage claims often result in high repair costs and are more likely to lead to rate adjustments. Liability claims, involving legal fees, medical bills, and settlements, tend to cause larger premium changes.
Deductible Amount: A higher deductible means the homeowner assumes more financial responsibility, resulting in lower initial premiums. While a higher deductible might mitigate some premium increases, it does not eliminate the potential for a rate hike, especially with frequent or severe claims. Each insurance company has its own underwriting rules, so the impact of a claim varies between providers.
Geographic Location: Living in an area prone to hazards (e.g., hurricanes, wildfires, high crime) carries a higher baseline risk. Claims related to these regional risks can compound existing geographical factors, leading to more substantial premium adjustments.

Understanding Your Claims History and Reporting

Insurance companies rely on a detailed record of past losses to assess risk and determine premiums, which is compiled in a policyholder’s claims history. This history provides insurers with insights into the likelihood of future claims. The primary mechanism for tracking this information across the insurance industry is the Comprehensive Loss Underwriting Exchange, known as a CLUE report.

LexisNexis, a consumer reporting agency, maintains the CLUE database, containing up to seven years of personal property claims history. The report includes details such as the policyholder’s name, date of birth, policy number, and a description of the property. Crucially, it lists information about past claims, including the date of loss, the type of loss, and the amount paid out by the insurer. Even if a claim was initiated but not paid out, or if it was denied, this information may still appear on the report.

Insurers utilize CLUE reports extensively during the underwriting process for new policies or when providing insurance quotes. By reviewing this centralized claims history, an insurance company gains a comprehensive understanding of a property’s past incidents and a prospective policyholder’s claims-filing behavior. This data allows them to make more informed decisions regarding insurability and to set appropriate premium rates.

Claims typically remain on a CLUE report for five to seven years from the filing date. While most insurers report to LexisNexis, some smaller companies may not, which could result in a blank CLUE report even if claims were made with those non-participating insurers. Under the federal Fair Credit Reporting Act (FCRA), consumers are entitled to one free copy of their CLUE report annually, available directly from LexisNexis. Reviewing this report allows individuals to verify its accuracy and dispute incorrect information.