Claim history and its impact

3.02.2021
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What is a Claim

The state of insurance when the insured (who bought insurance plan) asks the carrier (Insurance company) for money (in case of a covered loss) in lieu of the premium, which the insured pays according to the cycle they choose themselves (it can be monthly, quarterly or annually) is referred to as claim.
Or
An insurance claim is a type of formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim accordingly. If Claim approved, the insurance company will issue payment to the insured or an approved interested party on behalf of the insured.

Once insured claims their money, the carrier evaluates the amount based on coverages, limits, damages, and many more factors.

For example –
Let’s suppose someone purchased a personal auto policy insurance and that car crashed in an accident. Hence the owner went to the insurance company and asked for the money to overcome the loss. This is known as a claim.

Then the company evaluates the car damage level and other important aspects and decides the amount of money. That amount of money insured gets after evaluation is known as claim amount.

What is Claim History

Claim History is the record of the person who uses the insurance. When a person experiences a loss and makes a claim, the details of the claim become a part of our claim history. The main subject of that claim, what caused the damage, the amount paid by the insurer and other details are included in the history. Or we can say that Claim history is simply the detailed collection of past policy claims raised by the insured or account. It includes all the past policy claims as well for the same coverage with or without any relevance to the current one.

Insurance providers may use claims history as one factor in deciding what will be the insurance premiums. Generally, they’re only concerned with only the previous 3-6 years. Recent claims are more important than old claims.

Impact of claim history on Coverages and New Insurance

Claims history is only one of the factors for which insurance companies look at when they’re determining the coverage and your premiums of a person, but it’s an important one. It is quite an effective way to guess the probability of raising the claim by the insured. If there is a high chance of claim based on previous records, the carrier tends to increase the premium amount and also the vice versa. If there is less probability of a claim, then there will be a decrease in the premium amount. In particularly severe cases, Insurance Companies might not be able to offer insurance at all.

As to how much premiums will increase/decrease that will vary from case to case. Some types of claims are worse than others. The recency of claims is also a factor: a claim from six months ago is more significant than a claim from five or six years ago.

Hence it is an important factor from the carrier’s profit and loss point of view.

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