You bought insurance for your business for protection, you wanted to make sure you were covered, and now you have a claim… it’s not huge, but you’ve rarely (never?) had any claims before, so this is unfamiliar territory. Do you just turn it in to your carrier and hope for the best? Or do you hold off and deal with it out-of-pocket to protect your clean claims-free loss history? Or are there other factors that can guide you through this conundrum?
Here are a few helpful questions to consider:
Is there a source of free guidance to help?
YES. This is absolutely something your insurance broker can and should give you guidance on. And one of the first things they’ll tell you is that IF the claim is for liability (alleged damage or injury to others), then you almost definitely need to turn it in to your carrier right away: there are laws requiring many types of claims made by 3rd parties against you be turned in to the handling insurer promptly for both coverage and reporting obligations. But what if your claim isn’t related to any sort of regulated 3rd party liability? What options do you have if it’s a smaller claim affecting just your stuff? When does it make sense to consider handling the cost of insured damages out-of-pocket?
What is the probable cost of the claim?
A good guideline to embrace is: always have a rough idea of the value of your claim before deciding how you want to handle it. Very small claims may not give you much benefit at payout, but can still wind up costing you later if you lose a claim-free discount or other advantages offered by your carrier for a low claims history.
Do you have a deductible?
If so, how much? Many insureds decide not to make a claim to their insurers unless it’s worth at least twice their deductible amount. Why? Similar to the above: once you subtract your deductible, the remaining payout on some smaller claims may not justify the potential increase in premium that may come later as a result.
What’s a claim’s ultimate cost?
A claim’s payout amount is only part of its ultimate value. You also need to factor in the impact a claim will have on your future premiums.
Is your policy presently claim-free? If so, will submitting a claim result in your next renewal losing a “claim-free discount”? If so, how much would that cost you? For how many years/renewals?
Have you already submitted claims under that policy? If so, will submitting this additional claim push your loss-history into an “unacceptable” status by underwriting, causing your policy to be non-renewed, and leaving you with a more expensive and/or lower quality policy as your only potential replacement? For how many years could you be stuck with that?
These questions about future possibilities are hard to get exact answers for so far in advance, but even approximations arrived at by discussions with your broker can help you make a much more educated decision leading to fewer surprises (I don’t like surprises).
Should I submit the claim?
This isn’t to say you should operate under a “use-it-and-lose-it” mentality when it comes to your insurance: you paid good money for protection, and it’s there for a reason. But call your broker and go through the math *first* to get a rough idea of what a given claim might do for you (or to you) before you make your final choice.
Have a claim scenario you’re concerned about? Give us a call and we’ll walk you through some potential options. You’ll feel better once you do!
About the Author
Larry St. John is a 20+ year veteran of insurance and risk management for the construction and electronic security industries.
He can be reached at LStJohn@eclipseinsurance.com