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- Impact of filing claims on insurance premiums
Insurance premium is fixed for any asset based on assumption that certain percentage of customers will file for claims. This assumption relies on actuarial calculations based on past trends. Actuary is certified profession who works on statistical models regarding insurance claims. If actual claim are higher than the assumptions taken, the premium would have to be increased to recover the loss.
This doesn’t pertain to only just vehicle insurance but to any asset which is insured including your own life under life insurance. Higher the number the claims in the company portfolio and higher is the payout by the insurer. To recover the losses insurance companies don’t have a choice but increase the premium.
It is also important to look at the hike in premium because of claims at two levels: the premium hike for the overall insurance portfolio where all customers get impacted or a premium hike for an individual customer once he has filed a claim.
For example, inflation in medical treatment costs lead to increase in health insurance premium across all companies. Increase vehicle third party premiums by IRDA because of higher third party losses lead to an increase in premium by all companies. Recurring floods in a particular area lead to hike in insurance premium, earthquake prone zones have higher insurance costs.
Commercial vehicles and taxis spend more time on road as compared to private cars. Hence, these claims are higher than private cars and this why premium on all commercial vehicle customers and taxis are higher as compared to private cars.
At an individual policy level, companies have introduced the following checks to reduce claims. These checks at times, lead to increase in premium to be paid by individual customers if claims are filed.
1. Withdrawal of No claim bonus
In case of Motor insurance, every customer gets a percentage of his annual premium as discount if he doesn’t file a claim. It is called “No claim bonus”. If a customer files a claim, this discount is withdrawn and premium to be paid goes up next year.
This No claim discount starts at 20% and can go up to 50%.
2. Cumulative Bonus in health insurance
In case a customer doesn’t file a claim, his sum insured increases by say 10% every year. For example if someone has taken an insurance of 5 lakhs. If a claim is not filed he gets coverage of Rs 5, 50,000 next year. If an insured files a claim this cumulative bonus gets withdrawn and his sum insured come down.
3. Avoiding small claims to avoid hike in premium.
Experts suggest not to file claim for small damages like a dent or a broken front light. If the repair cost is low, one should not file a claim. The NCB could be retained this way. For example if the repair cost is Rs.2500 and the NCB is Rs.4000 you should bear the expenses and not file a claim.
4. Deductibles
To discourage claims and to reduce premium amount, Insurance companies give an option to customer pay a part of settlement if a claim is taken.
For example, if the deductable is Rs. 3000 and your claim is for Rs. 9000, the insurer is liable to pay only Rs. 6000 as part of the claim.
But for agreeing to pay this deductible at the time of taking insurance you get a good 12-15% discount in premium.
By increasing the deductable amount that is paid by the insured, premiums can be reduced.
After going through all the facts mentioned above, we can say filing of claims have direct impact on premium to be paid by an individual and society at large.
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