UPDATED: Mar 13, 2020
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Your claims history is one of the biggest factors behind your insurance premiums. Insurance companies need to check your claims history to calculate premiums.
Why is your claims history so important to insurers? Why do insurance companies care about your history of making claims? Today, we’re explaining everything you need to know about how your claims history affects car insurance prices.
More Claims Means Higher Costs for Car Insurance Companies
Car insurance companies are forbidden from using certain things to calculate insurance premiums. Insurance companies, for example, cannot use race to calculate insurance premiums.
Insurance companies care about your claims history for a simple reason: if you have a track record of making lots of claims, then that means it will cost more money for your insurance company to insure you.
Let’s say there are two drivers applying for car insurance from GEICO:
- Driver A has a clean claims history. Driver A has had car insurance for five years but has never made a claim for hail, theft, vandalism, accidents, collisions, or anything else covered under her insurance policy.
- Driver B has multiple claims on his history. Driver B rear-ended a truck last year. Earlier this year, Driver B rolled his own car in a single-vehicle collision. Driver B also parked his car outside in a rough neighborhood last week, and his car was broken into.
The insurance company receives an insurance quote request from both drivers. Based on the information above, the insurance company will see Driver A as the cheaper driver to insure because she’s perceived as being a less risky driver. Driver A has a multi-year history of maintaining insurance without making a claim. Driver B, on the other hand, is seen as a risky driver based on his multiple claims. Driver B will pay higher rates for insurance.
This is why claims history is so important for insurance companies.
How Do Insurance Companies Know About Your Previous Claims?
Insurers track claims across different providers by using something called a CLUE report.
CLUE, which stands for “Comprehensive Loss Underwriting Exchange”, is a database set up by LexisNexis to track and retain claim history. All insurance companies submit monthly “loss history” reports to the CLUE database. These loss history reports contain your personal information (name, date of birth, address, SSN), your claims history (claims paid, claims not paid), and inquiries. These reports stay in the CLUE database for 7 years, after which they are deleted.
Whereas Experian, Equifax, and Transunion keep track of your credit score, LexisNexis and CLUE keeps track of your insurance score. You can think of your CLUE report as your credit score, except for insurance.
All car insurance companies will consult your CLUE report before offering you car insurance coverage. Your insurance premiums are closely tied to your claims history. Therefore, if you want to maintain low auto insurance rates, you should try to keep your claim filing to a minimum.
What Happens If You Have No Claims History?
Some drivers have no claims history. A teenager who just got her license, for example, has no claims history. The same can be said for a new driver in his 20s.
We’ve established that claims history is so important to insurance companies. So what happens if you have no claims history?
In this case, the insurance company tends to err on the side of caution: the insurance company will charge higher premiums to drivers with no claims history.
You could be the best driver in the world. Or, you could be the worst driver in the world. If you have no claims history, then the insurance company has no way of determining whether you’re a good or bad driver. Until you build up a better claims history, the insurance company will err on the side of caution and charge higher rates to new drivers.
Comprehensive Claims Do Not Typically Raise Car Insurance Premiums
Generally, drivers with multiple claims on their history will pay higher car insurance premiums than drivers with a clean history.
There is an exception to this rule, however: claims on your comprehensive coverage do not typically increase your insurance rates.
Comprehensive coverage includes coverage against hail damage, fallen tree branches, vandalism, theft, and similar incidents. It covers damage to your vehicle outside of an accident.
If you need to make a claim on your comprehensive coverage, then it will not typically raise your premiums. In fact, some states expressly forbid insurance companies from raising insurance rates based on comprehensive coverage claims.
If you have multiple claims for at-fault accidents and similar incidents, then you can expect to pay higher insurance prices. If you have multiple claims for comprehensive coverage incidents, then it’s unlikely going to affect insurance rates.
Claims History Plays a Significant Role When Calculating Car Insurance Premiums
Ultimately, your claims history is one of the most important ways in which a car insurance company calculates insurance premiums. Based on your claims history, your car insurance company will calculate whether you’re a low-risk or high-risk driver. Then, they’ll charge premiums based on your perceived risk level. That’s why your claims history is important to insurers.