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Will another storm damage insurance claim wreck your rate?

In the aftermath of late-spring storms, thousands of Americans are picking up the pieces as they cope with property damage.

Severe thunderstorms and tornadoes in late May alone caused up to $7 billion in insured losses in the U.S., according to AIR Worldwide, a disaster-modeling firm. If your home is severely damaged, call your home insurance company right away to start the claim process so repairs can begin.

But what if the damage isn't so severe? Then filing a claim is a judgment call.

storm damage insurance claimsPennsylvania Insurance Commissioner Michael Consedine recently reminded consumers to take care to avoid being penalized for filing multiple home insurance claims in a short period of time. Filing multiple claims in a three- to five-year period can increase your policy's premium.

Rate-setting methods vary by state and insurance company

Pennsylvania was among 20 states to get hit by a series of turbulent storms in May. High winds, rain, hail and more than 150 tornadoes were reported from Lake Superior to central Texas and east through Missouri, Tennessee, Kentucky, Ohio and along the East Coast, AIR reported.

Consedine's home was among those that suffered minor damage. He said he plans to pay for repairs out of his own pocket rather than filing a claim and risking a premium increase. Under state law in Pennsylvania and some other states, insurance companies can't terminate a home insurance policy for claims or loss history, but they can increase the premium if you've filed repeated claims.

"The assumption among insurers is frequency leads to severity," says Ann Gallen Moll, president of Gallen Insurance Inc. in Reading, Pa.

Each insurance company handles the issue a little differently, and state laws vary. Some states stipulate a certain number or size of claims must be filed before an insurer can hike the customer’s premium.

In Pennsylvania most companies will increase the home insurance premium after you've made two claims in a three- to five-year period, Moll says. If you previously had a clean claims history, you could get hit twice in the pocket book -- once with the removal of a claim-free discount and again with a surcharge on the premium.

Other home insurance pricing factors

Keep in mind other factors besides your claims could influence an insurer's decision to increase the premium. Recent claim costs are an important ingredient for forecasting future costs in order to set rates, but some claims are more predictive than others, says State Farm spokesperson Dick Luedke.

For example, homeowners who file theft claims may be judged more risky than people who have an unlucky run with weather-related damage.

"In general, weather-related claims tend to be less predictive than other types of claims and therefore tend to impact future rates less frequently," he says, adding that he can’t speak for how other insurers handle multiple claims. "In addition, the filing of recent claims is just one of many factors that our actuaries use to predict our future costs and to set rates that we file with the state departments of insurance."

Consult your insurance agent

Moll suggests calling your insurance agent to learn how filing a claim could impact your rates. Say you made a claim earlier this year when hail damaged your roof. Two months later, high winds knock over a tree that scrapes off a few pieces of siding. For the second job, you learn the cost of repairs will be $100 more than your deductible. Before you file the claim, consider whether that $100 will be worth a potential premium hike.

"I think you just need to be practical," Moll says. "It may not be worth getting the insurance carrier involved on small incidents."

At what point is the cost of repairs large enough to justify filing a claim?  "Twice the deductible is a good rule of thumb," says Amy Bach, executive director of United Policyholders, a consumer advocacy group headquartered in San Francisco. You can also give notice of the damage without filing a claim, Bach says.

"A lot of people are nervous about doing that because they wonder if a note will be put in their file” and count as a claim, she says. "Some states have rules that an inquiry can't be registered as a claim. You can certainly call the agent and ask."

Don't delay informing your insurer about the damage if you think you'll file a claim, Bach says. Some home insurance policies require you to inform the insurer within a certain amount of time of the incident for the claim to be paid.

"Research shows the quicker a claim is reported, the quicker a claim is settled," Moll says.

Meanwhile, Luedke says consumers who think it might not be in their best interest to file small claims might want to consider choosing a higher deductible, which would bring down premium costs.

"If you are not going to use the coverage at the lower levels of risk, it makes sense not to buy those lower levels of risk," he says.

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