You probably understand how a car insurance deductible works -- you pay that amount out of pocket before the insurance kicks in to repair your wrecked car. If the repair costs less than your deductible, then you're on the hook for the whole tab and there's no use in filing an insurance claim for the damage. But a shadowy force is at work when you decide whether to file when the cost exceeds the deductible. Dubbed the "pseudodeductible" by insurance researchers, it's the amount you're willing to pay out of pocket above the deductible before you file a claim. Lurking behind the pseudodeductible could be laziness -- maybe you figure it's just too much trouble to deal with the insurance company -- but usually it's fear. You worry filing the claim will spark a premium increase or, worse, a non-renewal notice -- a sort of "Dear John" letter from the insurer the next time your policy comes up for renewal. "You're swapping the uncertain for the certain," says Dana Kerr, an associate professor of risk management and insurance at the University of Southern Maine. The uncertain amount is how much your premium might increase, and the certain amount is what you'd have to pay out of pocket if you didn't file an insurance claim. Consumers have probably weighed the risks of filing claims since insurance was invented. "This is an issue that's been floating around anecdotally in the industry, but because of a lack of data, it's been difficult to research empirically," Kerr says.
Researchers at Southern Methodist University and the University of Pennsylvania coined the term pseudodeductible in a 2006 study. They relied on closed State Farm claims and used sophisticated statistical models to infer when consumers might not file claims that exceed the actual deductible. Their study suggests that homeowners with frequent losses might be choosier in filing claims than homeowners with fewer losses.