Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Why might an insurer increase rates after a claim is made?

1. To reflect an increased risk profile

2. To penalize the insured

3. Due to market competition

4. Because of a claims handling error

The correct answer is: To reflect an increased risk profile

An insurer may choose to increase rates after a claim is made primarily to reflect an increased risk profile. When a policyholder files a claim, it often indicates that they have experienced a loss that could lead to future claims. This change in the risk landscape of the individual insured prompts the insurer to reassess the likelihood of future claims based on the historical data and specific circumstances surrounding the claim. Using these insights, insurers adjust rates to ensure they can cover potential future losses while remaining financially viable. This act of rate increase is not about punishing the insured but rather a rational response to the heightened risk that has emerged after the claim event. Factors such as market competition or claims handling errors might influence overall pricing strategies or customer service practices, but they do not directly correlate with the necessity of reflecting changes in an individual policyholder's risk profile after a claim.