A claim “closed without payment” is not the same thing as a “denied claim.” Claims can be closed without payment for many reasons, and failure to understand the different data subcategories is a common source of confusion for consumers.
It’s important for both policyholders and policymakers to understand what the data measures – and what it does not.
An inquiry by two U.S. senators into the claims-handling practices of six major homeowners and auto insurers – based in part on an article in The Wall Street Journal — underscores this importance. The senators have requested data pulls about claims closed without payment, formal denials, changes in claims practices, and whether employee compensation is tied to claim outcomes.
Such data – if reviewed without a clear understanding of the significance of each component – is more likely to muddy the discourse than to bring clarity.
Context is key
The words “closed without payment” describe the financial outcome of a claim. Such claims can occur for several reasons — many unrelated to denials, disputes over coverage, or claims-handling practices.
If, for example, a policyholder decides not to pursue a claim after reporting a loss, that event will be reflected as “closed without payment.” Likewise, if a claim was opened in error or reported more than once. The erroneous or duplicative claim is “closed without payment.” Further, a claim may be resolved through a different insurance policy or insurer – leaving the remaining claim to be “closed without payment.”
Insurers may also close a claim if the loss falls below the deductible – that is, the amount a policyholder is responsible for paying toward a covered loss before the insurer is required under the terms of the policy to pay. In this instance, the damage may be covered, but the cost of repairs does not exceed the amount the policyholder is responsible for paying.
This is not a “denial” – it is simply operating within the agreed-upon terms of the policy.
Consider a homeowner with a $2,500 deductible who experiences $2,000 in covered property damage. The insurer may determine the damage is covered, but no payout would be due because the loss does not exceed the deductible. The claim could, therefore, be recorded as closed without payment, even though coverage was not denied.
A “denied claim” may be one of the following, also unrelated to disputes or improper handling:
- The loss is not covered. The reported damage may involve a peril or circumstance that is specifically excluded under the policy. Flood damage, for instance, is generally not covered through standard homeowners insurance. Many homeowners remain unaware they need separate flood insurance to protect against this risk.
- The loss occurs outside the policy timeframe per policy terms. The reported damage may have occurred when coverage was inactive. Claims for losses that occurred before coverage began or after the policy expired would typically be rejected.
- An investigation determines no payment is owed. Depending on the facts of the loss and the applicable policy provisions, the insurer may have no obligation to pay, such as in cases involving misrepresented or fraudulent claims.
All these outcomes can appear in claims-closed-without-payment data, even though the circumstances are substantially different.
Claims falling below a policyholder’s deductible, for instance, are included in the National Association of Insurance Commissioners’ (NAIC) reporting category for claims closed without payment. This is why aggregate figures should not automatically be interpreted as the percentage of claims insurers have denied.
What claims data can and cannot tell us
Claims data can provide valuable insights into insurance market trends. However, determining whether claims practices have changed or whether claims were improperly handled requires careful interpretation of the underlying factors that influence claims outcomes. A change in the percentage of claims that closed without payment could reflect changes in deductibles, the types of losses reported, coverage provisions, and other claim-specific circumstances.
Questions about claims handling have also emerged alongside recent improvements in property/casualty insurance industry financial results. While these issues warrant examination, improved financial performance alone does not establish insurers are denying more covered claims.
Mark Friedlander, Triple-I’s senior director of media relations, told Insurance Journal insurer profitability should be evaluated in the context of several years of elevated losses and rising costs.
“Property/casualty insurers must maintain sufficient capital (surplus) to pay current and future claims, including losses from catastrophes that may not occur until well after premiums are collected,” Friedlander said. “Recent insurance industry financial results also need to be viewed against the significant increases in property repair and rebuilding costs, severe weather losses, higher auto repair costs, legal system abuse, and claim fraud that have negatively affected underwriting performance in recent years.”
Ultimately, insurers are obligated to handle covered claims based on policy terms and applicable law. These practices are further safeguarded via oversight from state insurance regulators. As such, consumers should expect their claims to be evaluated fairly and losses to be paid in accordance with their policies.
What consumers can do to protect themselves
Understanding insurance coverage before a loss occurs is one of the most effective ways consumers can avoid surprises during the claims process. Policyholders should periodically review their policies with an insurance professional to understand how their policy deductibles, exclusions, and coverage limits may affect a future claim.
When a loss occurs, consumers should document the damage, communicate with their insurer, and keep records of claims-related correspondence. If a claim closes without payment, policyholders should ask their insurer or claims representative to explain the decision and identify the applicable policy provisions.
If they disagree with the outcome, consumers can request further clarification and contact their state insurance department for assistance. State regulators can also provide resources for resolving consumer complaints.
Learn More:
How to File a Homeowners Claim
How to File an Auto Insurance Claim
Facts + Statistics: Homeowners and Renters Insurance
