What is the impact of a claim on future premiums?

A claim typically impacts future premiums because insurers assess the risk associated with the policyholder considering their claims history. When a claim is filed, it signals to the insurer that the policyholder may be at a higher risk of future claims, which often results in increased future premium rates.

The rationale behind this is based on the principle of risk versus reward in underwriting. Insurers calculate premiums based on the likelihood of future claims, and a history of claims usually indicates a higher likelihood of future files. As a result, the insurer adjusts the premium to account for this increased risk. This means that policyholders with a more significant history of claims can expect to see a rise in their insurance costs at renewal.

In contrast, other options suggest different outcomes that do not align with typical industry practices. For instance, saying that a claim has no impact on future premiums underestimates the relationship between claims and risk assessment. Additionally, the notion that a claim could lead to a decrease in future premium rates contradicts the basic premise of risk evaluation, as insurers usually adjust rates upward with increased risk exposure. Lastly, the idea that claims would result in a flat premium for the next term does not recognize the tendency of insurers to revise premiums based on the loss experience.