Claim Severity

Claim severity measures how expensive your claims are when you file them. While frequency measures how often you claim, severity measures how much each claim costs.

How It's Calculated:

Example: 3 claims in 10 years

• Claim 1: $2,000
• Claim 2: $8,000
• Claim 3: $3,500
• Average severity = ($2,000 + $8,000 + $3,500) ÷ 3 = $4,500 per claim

Severity Categories:

Low Severity (< $2,000):

• Minor fender benders
• Windshield replacement
• Small vandalism repairs
• Key scratches
• Often better to pay out-of-pocket

Medium Severity ($2,000-$10,000):

• Moderate collisions
• Hail damage
• Theft of vehicle parts
• Typical insurance claims

High Severity (> $10,000):

• Total losses
• Major accidents with injury
• Vehicle theft
• Always file these claims

Impact on Insurance:

Rate Increase by Severity:

• < $2,000 claim: 15-25% increase
• $2,000-$5,000 claim: 20-35% increase
• $5,000-$10,000 claim: 30-45% increase

• $10,000 claim: 35-50% increase

High severity + high frequency = dropped coverage: Multiple expensive claims signal you're a high-risk customer. Insurers may non-renew your policy.

Strategic Considerations:

When Severity Matters Most:

For low-severity claims (< $3,000), the long-term rate increase often costs more than paying out-of-pocket. For high-severity claims (> $5,000), filing is almost always worth it despite the rate hike.

Break-Even Analysis:

Should you file a $4,000 claim with a $1,000 deductible?

• Insurance pays: $3,000
• Rate increase: +30% × $1,800 = +$540/year × 3 years = $1,620
• Total cost: $1,000 + $1,620 = $2,620
• Out-of-pocket: $4,000
• Verdict: File the claim. Save $1,380.