Who’s More Likely to Get Dropped by Their Insurance?
I have another curiosity to share!
About seven months ago, my cousin and his wife purchased a $1.1 million home. Just two weeks after moving in, they experienced an electrical fire, which was discovered by a contractor who was there for a mold issue. Thankfully, no one was injured, but they did suffer significant damage to a 5×5 ft area of their kitchen, along with major repairs needed for the floorboards. So far, their insurance has covered around $350,000 for the repairs. What was initially expected to be a seven-week job ended up dragging on for six months. To make matters worse, another contractor left the door open, leading to frozen and burst pipes, which flooded their basement.
These poor folks have really had a rough time with their new house. Fortunately, the second incident will be covered by the contractor’s insurance due to their negligence.
On the other hand, my brother-in-law has called his insurance three times for his $400,000 home—once for a single shingle replacement on his roof in March (longer story there), then in June for a water heater that he claimed wasn’t producing enough hot water, which he insisted on replacing entirely. Just a couple of weeks ago, he had to file a claim for his garage door after he accidentally drove into it. Altogether, his claims have amounted to about $10,000.
Generally, many would think that my brother-in-law is at a higher risk of getting dropped by his insurance due to his three minor claims in quick succession. However, my cousin’s severe misfortunes have completely changed the conversation, especially with the recent flood incident.
So, as someone who has no stake in either situation, I’m curious: if you were an insurance agent, which client do you think would be more likely to get dropped? The one with the series of unfortunate events or the one making repeated small claims? And why do you think so?
This is definitely an interesting situation! From an insurance perspective, there are different factors at play when deciding whether to drop a client.
Your cousin and his wife have faced major incidents with their home, but they seem to be more about bad luck and external factors (like a contractor’s error). Insurance companies typically understand that certain events, like natural disasters or contractor negligence, are out of the homeowner’s control. However, consistently high claims could signal potential underlying issues with the property or environment, which may concern insurers.
On the other hand, your brother-in-law’s claims may seem minor individually, but the frequency of claims can raise a red flag for insurers. They generally prefer clients who have a low frequency of claims because it shows responsible homeownership and maintenance. Excessive claims, even if they’re small, can indicate to insurers that the homeowner is not managing home care effectively or might be prone to future claims.
In this case, while your cousin’s situation is unfortunate, I would say that his poor luck may make him less of a liability in the eyes of an insurer—at least until they perceive that the problems are ongoing or indicative of deeper issues. Your brother-in-law, on the flip side, might be seen as a higher risk due to his repeated smaller claims, suggesting a lack of maintenance or care for the home.
So if I were an insurance agent, I might be more inclined to drop your brother-in-law due to the pattern of minor claims that could be viewed as indicative of ongoing issues. However, it could also depend on the insurer’s overall risk appetite and their specific policies regarding claim frequency and severity. Ultimately, both cases are quite different, but I’d lean towards the brother-in-law as the riskier client based on claim frequency.