What should people know about home insurance claims?

Among the biggest issues home insurers face is that while policyholders often get the coverage they need, they often do not fully know what that coverage means. That can be especially true when they need to make a claim. With that in mind, it may be important for insurers to do a little more to help people understand what the claims process actually entails, and how it is used to set ongoing premiums.

Industry data from V Home Insurance suggests as much as 95% of all claims on such coverage in a given year are related to property damage. That includes a significant number of claims related to severe weather events and water or freezing damage – both north of 40% of all claims. The rest tend to be made up of things like theft, injury and so on.

Consequently, many homeowners would certainly not be surprised to learn that external factors beyond their control are typically used to set rates, including things like the physical location of their properties (i.e. within areas at higher risk for flooding, tornadoes, earthquakes, hurricanes and other major risks). However, issues such as whether the home is relatively new or has recently been renovated; if it has a pool; the types of materials used in its construction; how close it is to police stations, fire houses, hydrants and so on all play a role as well.

Home insurance claims processes are growing more popular.

In addition, homeowners whose properties have been the subject of more frequent claims – even just one – in recent years may face higher premiums, the data showed. Conversely, properties that have gone without a claim for a period of years may pay as much as 20% less for coverage.

Making progress
Encouragingly for the home insurance industry, ongoing concerns homeowners have about engagement and education are largely being answered. The J.D. Power 2020 U.S. Property Claims Satisfaction Study found contentedness with coverage and the claims process among consumers is on the rise, hitting an all-time high of 881 out of 1,000. That was also up significantly on an annual basis, and now makes property claims the single most popular type of consumer service J.D. Power examines.

In short, people have spoken up about their past issues with filing home insurance claims, and policy providers have listened. However, a minority of people remain concerned about rising premiums, and some still feel that claims processes are too difficult to navigate, both of which can combine to make people more likely to shop for new coverage elsewhere.

“Home insurers have spent a great deal of time and money refining their claims processing capabilities through a combination of improved client relationship management, enhanced technology and improved quality control,” said David Pieffer, property & casualty lead for insurance intelligence at J.D. Power. “Getting this formula right is critical for insurers because any customer perception of undue effort or unnecessary delays experienced on the part of the customer in the claims process is directly correlated with increased shopping for a new insurer.”

What people need to know
Even with that emerging reality in mind, home insurers still cannot rest on their laurels and assume that property owners are fully aware of all the ins and outs of their coverage. Kansas City television station KMBC notes that people still largely need to understand the financial realities around filing a claim, such as what their deductibles may be, how changes in property values over time may affect them, what kinds of damage is or is not covered under a specific plan and more.

That may require people to do some data crunching to find out whether filing a claim is worth it, or if it's more financially prudent for them to cover the cost of relatively minor repairs out of pocket. This may be especially true given that filing claims tends to raise rates going forward, in addition to whatever people would have to cover on their deductible, which can be as much as 2.5% of the property's value in some cases.

Now's the time
Spring is here, and it's a season when many homeowners file claims of all types because of how rapidly weather can change and cause damage to a property. For that reason, many industry experts say now is the time for policyholders to review their coverage. CNBC notes that major weather incidents are becoming more common with each passing year, and the ins and outs of these policies seem to be changing as well.

For all these reasons and more, it's important for insurers to be attentive about outreach, and as transparent as possible about what filing a claim entails and the financial issues doing so may carry for policyholders. That kind of extra effort will only help to improve consumer perceptions about coverage and the claims process, which pays off for all involved in the long run.