Claim History Is Driving Insurance Coverage and Premiums

In today’s hard insurance market, claim history matters more than ever before. Why? Because insurance carriers are becoming more choosy about the risks they're willing to take on, and one of their prime considerations when renewing a policy or taking on a new client is that client's claim history. So co-op and condo boards and their property managers should be scrutinizing their claim-filing procedures. Here are the questions you should ask before you decide to file a claim:

The most basic question: Is the damage a covered loss?

Insurance is designed to cover sudden and accidental losses. Damage that is a result of long-term wear and tear, lack of maintenance or deterioration is excluded on every insurance policy that I have ever seen. Typically, if you cannot pinpoint the exact time of the damage, there are likely to be coverage issues. For example, if a roof leaks and there is no direct physical damage to the roof (such as shingles were blown off during heavy winds), then the claim will likely fall under the “wear and tear” exclusion. 

Has this property had a lot of claims in the recent past?

Claim frequency is a big factor when underwriters are scrutinizing your property for coverage renewal and possibly moving coverage to a new carrier. In short, the fewer claims you have, the more favorable your risk appears to insurers. Most insurers even view one large “shock loss” in the six-figure range as more favorable than five small losses that pay out a few thousand dollars each. If you have five claims for broken pipes, the carrier will likely conclude there is an issue with the building’s plumbing and may choose to either substantially increase your premium or get off the risk altogether. Yes, history matters.

What if the damages exceed the deductible by only a few thousand dollars?

While this is a judgment call by the board and management, it may be prudent in this hard insurance market to avoid filing a claim for a payout of less than $5,000. Any claim that gets paid out — regardless of the amount — is a negative mark against the building’s insurance and could have a negative effect on future premiums. If, on the other hand, the damages do not exceed the policy’s deductible, there is no reason to file a claim. 

How do I know if the damages are under the policy’s deductible?

It is perfectly acceptable to call in a contractor you trust to evaluate and give you an estimate for the damages, then use that to decide whether or not the damages will exceed the deductible — and whether you should hold off or move ahead with filing a claim.

Can we ask our insurance agent if a claim is covered before filing?

The only way to know for certain if a claim is covered is to file a claim and have a representative from the carrier come out, investigate, and make a coverage determination. We can give our OPINION on whether we think the claim is covered or not based on the policy language and our experience. If we are told to file a claim in writing, we are obligated to report it to the carrier at that point.

Donald Schatzle is claims director at the insurance brokerage Mackoul Risk Solutions.