Whose Insurance is More Likely to Cancel Them?
I have another intriguing question for you all.
My cousin and his wife recently purchased a $1.1 million home about seven months ago. Two weeks after moving in, they experienced an electrical fire, which was thankfully discovered by a contractor who was there for a mold-related issue. While everyone was unharmed, the fire caused significant damage to a 5×5 ft section of their kitchen and required extensive repairs to the floorboards. Their insurance has already paid out $350,000. What was supposed to be a seven-week renovation spiraled into a six-month ordeal, and to make matters worse, another contractor accidentally left the door open, causing their pipes to freeze and burst, leading to a flooded basement.
My cousin and his wife have certainly had their fair share of unfortunate events with their new home. The second incident will fall under the other contractor’s insurance because of their negligence.
On the flip side, my brother-in-law has made three insurance claims for his $400,000 home: once in March 2024 for a single roof shingle replacement (mind you, he’s not the most skilled individual, but that’s a story for another time), again in June 2024 because his water heater wasn’t “hot enough” and he demanded a full replacement, and recently for his garage door, which malfunctioned after he accidentally drove into it. His claims have totaled around $10,000.
Common wisdom around here suggests that my brother-in-law is more likely to get dropped by his insurance due to his three small, somewhat frivolous claims within a year. However, the recent flooding incident has thrown a wrench into that assumption.
So, as someone without any personal stake in either situation, I’m curious: if you were an insurance agent, which client would you be more inclined to drop? The unfortunate couple facing constant disasters in their “haunted” home, or the brother-in-law who can’t seem to handle basic repairs?
And, of course, what’s the reasoning behind your choice?
This is an interesting question, and it highlights how insurance companies assess risk. If I were an insurance agent, I’d consider several factors when determining which homeowner might be more likely to be dropped.
Claim Frequency and Severity: Your brother-in-law has made three claims totaling about $10,000, while your cousin has faced two major incidents resulting in approximately $350,000 paid out. Insurance companies typically view frequency as an important factor—they might be concerned about insuring someone who has multiple claims within a short time frame, even if they are smaller. However, the severity of your cousin’s claims may paint him as a higher risk because of their potential cost.
Nature of the Claims: Your cousin’s incidents seem largely out of his control—an electrical fire and a contractor’s mistake leading to flooding. This might evoke sympathy from the insurer. Conversely, your brother-in-law’s claims stem from what could be perceived as negligence (running into the garage door) and potentially poor maintenance (complaining about a water heater). Claims that suggest a lack of care can signal to insurers that future claims may also arise from neglect.
Insurer Perspective: Ultimately, insurers want to minimize risk. They might be cautious about dropping your cousin due to these unfortunate events being more like accidents, but they may also view him as a higher risk homeowner due to the extensive repairs already claimed. Your brother-in-law may seem like a higher risk for frequent claims, but his lower severity and potential view as a “nuisance” client might make him less likely to be dropped outright.
Long-Term Projections: Insurance companies also think about future claims and habits. If your brother-in-law continues to file smaller claims, he could be seen as someone who habitually uses insurance rather than taking care of his property. On the other hand, if your cousin’s house becomes a continual site of major issues, they might also be concerned about ongoing expenses.
In summary, while it might seem like your brother-in-law has a higher chance of being dropped due to claim frequency, the severity and uncontrollable nature of your cousin’s incidents might lead the insurer to see risks in both scenarios. I would likely consider dropping the brother-in-law for being a frequent claimant, but keep a very close watch on your cousin’s situation as it unfolds. Ultimately, it could be a toss-up depending on the insurer’s specific policies and risk assessment strategies.