Claims Frequency – When is it wise to file an auto claim?
When you are involved in a car accident or your car is damaged in some way, your first instinct might be to contact your insurance company to report an auto claim. After all, this is what you pay insurance premiums for, right? Not necessarily. You may want to reconsider before you pick up the phone to report a potential auto claim.
Insurance companies report all claim payments to a national database known as the Comprehensive Loss Underwriting Exchange, or C.L.U.E. In turn, the same system is used by insurance companies to review the loss history of a prospective client. Whether the insurance company paid one dollar or one million dollars, it will show on the C.L.U.E. database and that can affect your eligibility with an insurance company and negatively impact your auto insurance rates. Insurance company underwriters consider claims frequency as well as the amounts paid, and several small claims could have the same impact as one or two larger claims, depending upon the insurance company.
There are basically two types of auto insurance claims property and liability. Property claims include any type of physical damage to your own vehicle. Claims involving property damage or personal injury caused by your vehicle to a different party would be considered a liability claim. With this in mind, there are several things you should consider when deciding whether or not to report a claim. Each situation or accident is unique and therefore special consideration should be taken with each potential claim scenario. Use the following as a guideline, but always contact your agent or insurance company when in doubt.
Property damage claims - Is it worth it? When a potential claim involves damage to your own vehicle only, you need to consider the cost of the repair, the amount of your deductible, and how it will affect your future insurability. If you have no prior claims on your record and report a small claim, your insurer may or may not impose a penalty or premium surcharge.
But what would happen if later on you have a much larger claim that you are unable to absorb financially, and then within the year, you have another large claim? You now have three claims within a short timeframe. Your insurance company could potentially non-renew you based upon your claims frequency. Furthermore, you are required to disclose the fact that you were cancelled and the reason for the cancellation to insurers with whom you are applying for coverage.
If you had absorbed the first small claim without reporting it, you could have saved yourself a lot of headaches - and money - in the long run. The following are examples of property damage claims you might not want to report.
Don’t Report: Claims below your deductible. You should first get an estimate of repair. If the claim is less than your deductible, pay for the repair out of pocket.
Don’t Report: Small claims you can absorb. Backing out of a parking spot at the mall, you scratch your bumper on a light post. The repair estimate for your bumper is $585 and you have a $500 collision deductible. You are entitled to payment of $85, but before reporting such a small claim, you should consider whether or not it is worth the potential consequences.
Example: Your car is broken into and your briefcase & some electronic devices are stolen. The only damage to your car is the driver’s side door lock. Your service advisor offers you an estimate of $475 for repair. Your stolen briefcase and electronics were worth $750 in replacement value. If you have a $500 comprehensive auto deductible, the damage to your vehicle would be below the deductible. And, unless your policy is endorsed, there would be no auto policy coverage for your briefcase and electronics because it is not permanently installed in your vehicle. There may be coverage for the briefcase and contents under your homeowners or renters policy, but the deductible of that policy would also apply. If the auto damage was more severe, and the value of the contents was higher – you could face 2 separate claims out of the same occurrence.
Liability claims. Is there potential for injury? When another party is involved in any type of accident that was caused by you, coverage is targeted under the liability portion of your policy. Most liability claims should be reported to your insurance company, even if the damage is very minimal. The following are examples of the two types of liability claims.
Property damage liability
Don’t Report: Small claims involving only property damage and no personal injury. In the instance used above involving the light post, assume the light post was damaged. This would be a covered claim under the property damage liability and the deductible would still apply. But if the damage is minimal, you may want to consider paying this damage yourself to avoid having a claim on your record.
Don’t Report: Minor accidents that cause minimal damage. You back into an unoccupied parked car, causing very minimal damage. You might consider paying for the damages out-of-pocket for your auto and the other party’s auto, since no person was involved and there is no chance of injury.
Bodily injury liability
Any claim, regardless of fault, should be reported when you are involved in an accident involving another person that could later make an injury claim, even if it is a very low-impact collision and extremely unlikely there is an injury. This includes occupants of your own vehicle, other than family members, whether or not another vehicle was not involved.
Always report: Any claim involving potential for injury. Attempting to stop at a traffic light, you rear-end another vehicle going only 5 MPH. Both you and the other driver assess the damage and conclude that the damage is very minimal and possibly not worth reporting to your insurance company since no one was injured. Contact your agent or insurance company to notify them of the incident. Explain the details of the accident; provide the date, time and location of the accident, the make & model of the other vehicle, and the name of the person driving the vehicle as well as any passengers. You can still pay for the repairs yourself to avoid having a claim on your record, but at least you have made your insurance company aware of the incident. You never know when this could come back to you. If a few months later, the driver or an occupant of the vehicle suddenly develops a back injury and decides it is from that accident, your insurance company may not be obligated to defend you if you had not reported the claim.
Always report: Claims involving pedestrians, cyclists, or minors.
Example: Backing out of your driveway, a neighborhood child riding his bicycle zooms behind you before you can stop, and you clip the rear tire, causing him to fall from his bicycle.
Always report an accident of any kind involving a pedestrian or cyclist, regardless of who was at fault, and always report any type of incident involving a minor child to your insurance company. Give the details of the incident and the names of any witnesses who saw it happen. Even if the child and his parent apologize and insist the child was at fault, you should still report it. This type of incident could end up being a legal nightmare and it needs to be documented in order to protect you from potential future litigation. Your insurance company would be aware of the incident, and would be obligated to defend you, should a claim for injury ever be made. Consider your options carefully before filing a claim.
Each and every liability auto claim has its own unique circumstances and careful consideration should be made before deciding not to report it to your insurer. If you have any doubt whatsoever, you should discuss with your agent or file the claim in the event of more extensive property damage or liability concerns. It’s always better to be safe than sorry.