How are premiums typically affected by claim history?

A history of claims generally leads to higher premiums because insurers assess risk when determining the cost of insurance coverage. When a policyholder files multiple claims, it signals to the insurer that the individual or entity is a higher risk. As a result, the insurer may increase premium rates to offset potential future losses. Insurers have statistical data showing that those with frequent claims are more likely to file additional claims in the future, leading them to adjust premiums accordingly.

This principle encourages policyholders to be cautious and to limit claims when possible, as a higher claim history can lead to increased costs over time. In contrast, options suggesting lower premiums or no effect on premiums would misrepresent the fundamental operations of insurance underwriting where risk assessment plays a critical role in pricing.