Will my Premiums Increase after a Claim?

We take out short-term insurance on our homes, cars and other belongings to protect us against the loss or damage of the insured item. Will your monthly insurance premiums increase once you make a claim against the insurance policy? In answering that question we are first going to take a look at what is happening in the short-term insurance industry in South Africa and the overall effect that insurance claims have on the industry and eventually on us as individuals.

What’s happening in the short-term insurance industry?

Insurance companies are profit-making businesses and have to be managed accordingly. The industry is heavily regulated to protect both investors and insurance clients. It is a logical conclusion that the more claims an insurance companies have to pay out, the less profit they will make. When claims increase the ripple effect will inevitably be an increase in premiums as insurers have to protect their profit margins to ensure their viability.

Insurance companies have seen an increase in claims during the past few years on a number of fronts: The changes in weather patterns have resulted in a huge increase in claims due to storm and flood damage. We constantly hear on the news how coastal properties are being damaged or destroyed. The insurance company also reported an increase in fire claims since 2007.

The statistics show that car theft has decreased in 2008, but carjackings has increased. Car theft is still unacceptably high and plays a major role in the high car insurance premiums we have to pay. Eskom’s load-shedding has also been blamed for an increase in home burglary claims. Although some companies have seen a decrease in the number of household claims the severity of burglary claims has increased.

A third concern is the effect of fraudulent claims on the short-term industry. During recessionary economic times insurance companies always see an increase in the amount of fraudulent claims. According to the trade credit protection and solutions company Coface South Africa, fraud is costing the short-term insurance industry R2-billion a year!

How does it affect me?

So, how does it affect you as an individual? All the above factors have a direct bearing on your insurance premiums as insurance companies spread the risk amongst all insured parties. What happens to your insurance premium if you personally make a claim depends on your insurance company. Some companies may increase your premiums immediately but in most cases you should not see an immediate increase in your insurance premiums. When your policy is due for an annual review the number of claims and the size thereof will be taken into account when setting your new premium.

Some insurance companies advertise that they do not increase your premiums after claiming, unless your claim falls outside their laid down limits. So, you may not see a dramatic increase in your premiums but as we have discussed insurance claims eventually impact on the price.

Your no-claim bonus

The system of no-claim bonuses, if used by your insurance company will determine if, and by how much your insurance premium will increase for the next year. In car insurance your insurance premium is calculated according to your risk profile. After every claim, you become a bigger risk and it is inevitable that this will be reflected in your premiums. If you continuously claim you may find yourself without insurance as no company will be prepared to take you on as a risk!

Your excess and cash-back bonus

Not only will your insurance premiums increase after a claim, in most cases, you may find that you also have to pay a bigger excess on future claims. Also, if you have a cash-back bonus incentive program with your insurance, you will lose that when you claim.

So, what can I do?

We are not saying that you should not ever claim against your insurance; that will defeat the whole purpose of having insurance. We advocate that you firstly protect yourself and your belongings as far as is humanly possible to prevent making claims that could have been avoided.

Insurance Companies are increasing their fight against crime but we can all keep our eyes and ears open and report any suspected fraudulent activity. Turning a blind eye means we all pay the price in increased premiums.