In recent years in Colorado, there has been an increasing trend in both the number of homeowners’ insurance claims and the severity of these claims. It seems some homeowners are concerned about turning in ANY claim while others don’t give it a second thought. Insurance underwriters are taking a second look at which clients they wish to retain and which clients no longer represent a good risk.
In light of this, I sat down with Mark Peter, State Farm agent serving the Denver metro market, to learn more about this topic.
Doug Phelps: What are the trends you have seen which impact a homeowner’s decision to turn in a claim?
Mark Peter: Great question, Doug. Right now, there are several trends which all have led to an increased level of scrutiny by underwriters in deciding whether or not to renew a policy when it comes up for review.
First is “claim severity,” or how big is the average claim payout. From 2009-2013, Colorado experienced a 179% increase in average payout. This is the largest percentage increase in the U.S., according to stats from the Rocky Mountain Insurance Information Association (RMIIA).
Second, the average homeowner generally experiences a claim once every 15-20 years, known as “claim frequency.” During this same time frame, claim frequency in Colorado doubled from 5% to 10%. So, you have both higher payouts and more frequent payouts. Not a great combination.
DP: So what, then, is an underwriter looking for when the policy comes up for renewal?
MP: Since a typical homeowner has a recorded claim only every 15-20 years, an underwriter is not looking at just the last 3-5 years. The underwriter is likely looking back at the claim activity over the past 2 decades! Three to four claims in that time frame could lead to some action, like a higher deductible or perhaps not renewing the policy.
DP: So an underwriter is looking more closely at how many claims are filed over a broad time frame more than ever before. How is a claim defined?
MP: If a claim is filed – that is, a homeowner notifies his or her insurance company of a concern – and the result of the claim was no payout (no damage found or damage did not exceed the deductible), the claim stays in the homeowner record as a “filed claim”. This counts toward claim frequency. According to industry actuaries, those clients with a higher past claim frequency, even “zero paid” claims, have a higher probability for more future losses.
DP: Are homeowners better off dealing with certain issues on their own?
MP: Absolutely. For example, say a homeowner wants to turn in a roof claim, “just to see if there is any damage” from a recent storm. This could work against them as the aforementioned “filed claim.” Instead, the homeowner should consider speaking with their local agent and see if he or she knows of one or more reputable roofing companies to conduct a complimentary pre-claim inspection. A reputable company can tell if, A) they find little or no damage, B) they find only minor damage that can be repaired inexpensively, or, C) there seems to be enough damage to warrant turning in a claim.
DP: If the damage warrants a claim to replace the roof, what products do you recommend they go with?
MP: Look into a hail resistive roofing product. Some insurance companies will give homeowners a large discount for installing a Class 3 or Class 4 Hail Resistive roof. Many reputable roofing companies will upgrade you at little or no extra charge. And you may very well save yourself from a future deductible!
Underwriters look favorably upon homeowners that take loss mitigation steps, such as having a Class 4 Hail Resistive roof, a monitored alarm system, an automatic water shutoff system that turns off water at the main valve if a leak is detected.
DP: The message homeowners should take away from this is what?
MP: In today’s tight underwriting market, to be a smarter insurance consumer –
– Avoid turning in small claims you can financially handle.
– Don’t turn in claims without consulting with your trusted agent.
Oh, and one other thing that we didn’t talk about but is a good idea: Set your deductible higher to save some money on premiums, but not so high you that you can’t pay your deductible if you had a claim.
DP: Mark, I really appreciate you taking some time to help educate homeowners.
For more information about this topic and others related to insurances, contact Mark Peter at
(303) 755-3220 or firstname.lastname@example.org.