10 Claims Handlingn Flashcards
Role of claims team
Leaving good impression on client, interfacing with other departments to enable organisation to flourish in the
marketplace
Points of interface between Claims team and other insurer departments
1. Underwriting
Report wordings causing problems
Advise on new wordings
Provide claims data to review risk performance
Liaising if claim outside coverage
Liaising re commercial pressures to settle certain claims
Points of interface between Claims team and other insurer departments
2. Outwards reinsurance
Monitor which reinsurances are claims control/co-op clauses to avoid breaches
Provide data to reinsurers
Code losses to monitor aggregation for reinsurance claims
Keep claims data / reserves up to date for accurate loss data
Points of interface between Claims team and other insurer departments
3. Complaints
Provide clear information on handling of claims to assist complaints handlers
Ask complaints to advise on regulatory information so can incorporate into work
Points of interface between Claims team and other insurer departments
4. Management Information (MI)
Provide input for system designs
Liaise with MI to ensure data is being reported correctly
Points of interface between Claims team and other insurer departments
5. Legal
Manage agreements for the outsourcing of claims
Liaise if claims go to litigation
Advise legal if any problems with particular clauses
Points of interface between Claims team and other insurer departments
6. Compliance
Ensure claims team are trained and authorised
All staff aware of regulatory requirements
Points of interface between Clams team and other insurer departments
7. Marketing
Highlight issues where product is not being explained clearly
Use claims as a marketing tool
Points of interface between Claims team and other insurer departments
8. Senior Management / Board
Report large claims
Report matters of concern to company - director must be in charge of claims
Points of interface between Claims team and other insurer departments
9. Finance
Liaise on claim payments
Liaise if a catastrophe event has happened and might affect cash flows
Broker’s role in claims process
First point of contact for client, called “first advice” or “first notification”
Broker gathers all information and reviews wording
Broker presents a claim either electronically or paper file
Broker’s ongoing role in claims process
Provide updated information (from client or experts appointed)
Negotiate for client
Receive claim funds (usually)
Claims agreement rules
Lloyd’s Market
Claims handling in Lloyds market is governed by documents called Lloyd’s Claim Schemes (Combined)
Contains rules concerning agreement parties for claims / some exceptions for certain classes
If not singleton business, claims are either single or dual leader agreements in Lloyds. Two categories are:
- Standard Claims (under GBP 500k) handled by Leader. This is under GBP 1m for energy or property treaty.
- Complex Claims (over GBP 500k) handled by first two syndicates. This is cover GBP 1m for energy and property classes. Claims can be deemed complex in other circumstances such as their facts, but the Leader will decide this at time of presentation. It might be deemed complex to start with, and then downgraded to Standard when more facts become available
Claims agreement rules
IUA Company Market (marine and aviation)
IUA claims handling agreements
Rules vary depending on whether it is
- An advice or settlement
- there is Lloyd’s involvement
- direct / XoL reinsurance (proportional outside rules)
Advices can be agreed by Leader.
Settlements have a combination of requirements
- Marine (not XoL): if Lloyd’s, only 1 company market required to bind. If no Lloyds, first 2 companies
- Aviation (not XoL): if direct business, first 2 company markets required to bind. If it is facultative reinsurance, lead company only.
- XoL reinsurance: Always first 2 company markets must agree
Claims agreement rules
IUA Company Market (non-marine)
No binding possible, each insurer has to agree for its own share
Company Markets are not prepared to be bound by one leader on claims decisions. Broker needs to seek agreement from everyone. Applies to information too.
Exception - can set up claims agreement system to bypass certain insurers if their share is below a pre-set financial limit
Singleton business
Policy written by one syndicate or two syndicates managed by same managing agent
Claims Transformation Programme
Lloyds doc - rules about how leaders can handle claims. Invented when Claims agreement moved from Leaders and Xchanging to just leaders in 2010 to streamline process, make it more competitive
Single Claims Agreement Party (SCAP) - LMA 9150
invented to streamline smaller, standard claims. Clause LMA 9150 sets out basis for agreement of claims.
NOT FOR PROPORTIONAL TREATY REINSURANCES OR BINDING AUTHORITIES.
Can be used on a binder if an open market subscription
Claim eligible if under GBP 250k or equivalent, and the claim is neither complex or controversial. Leader decides this, not broker
If claim is under SCAP rules, Slip Leader (either lloyds or company market) binds all other insurers irrespective of whether they’re Lloyds or company
Role of XCS in claims process
XCS - a DXC company
maintains Lloyd’s claims database. Enters data, sends out overnight messages to insurers, moves funds from syndicates to brokers (“Technical Processing”)
Leaders can delegate claims handling to XCS (as well as other organisations). This means a XCS claims adjuster might liaise with another XCS colleague for market data
Role of experts in claims process
Investigates claims
If a liability matter, defends insured against legal action that might commence against them
Usually appointed by the broker, so reports sent to insurer via broker
Sometimes insurers appoint experts for advice regarding claim coverage. The insurer wouldn’t want the insured to know this, so in this instance the expert reports directly to the insurer
Types of experts used in the claims process
Lawyers - defend insured, advise insurer on coverage
Loss adjusters - inspect damage, advise on repairs
Loss assessors - same as above, but client is insured and assist in making claim presentation
Surveyors - evaluate loss/damage
Third party administrators - delegated claims administrators which are delegated responsibility of claims process by insurer
Accountants - for business interruption claims
Investigators - personal injury claims
Specialist experts - fire/ship collision/chemist claims
Average adjusters - specialise in marine claims, assess claims for particular and general average to all interested parties
Translators/interpreters
Subrogation/recovery specialists
Appointment of expert management by an insurer
Insurer must brief the expert properly and explain what is required of them, how much they will be paid eg with a detailed instruction letter - usually using a Terms of Engagement
Insurer cannot hold expert accountable if they cannot do what’s required of them
Process of claims handling (general steps)
Once notified of loss, broker works out which insurers they need to discuss with (agreement parties)
Then Broker submits information to chosen agreement parties
Agreement parties consider and respond to broker. Here, insurers should consider conflicts of interest
For Lloyds only, XCS enters claims data into system
Broker receives comments from agreement parties. Agreement parties receive daily messages updating information re claims on their own systems
If claim agreed, funds are debited from their accounts and sent to broker
Broker updates file and repeats process as required
Process of claims handling - Step 1 First Notification of Loss (general)
First advice/notification generally sent to broker.
Sometimes insurer will require an expert to be a notification party in event of a loss (for eg Professional indemnity, a lawyer will be nominated. for Cargo, a surveyor local to the loss). Important for cargo insurance as sometimes immediate action will be required, so instructing insured to take particular steps/pre agreed expert means chance of a dispute later on is reduced.
Broker must consider if any conflict of interest internally - eg if they also have delegated authority.
Insurer might also have conflict of interest, for eg
- Professional indemnity - two experts being sued for same reason
- Marine hull - two vessels in a collision
- Aviation - product liability from manufacturer and distributor
If insurer cannot mitigate the conflict of interest internally (eg by separating claims team for each part) they may declare an organisational conflict and give up their right as an agreement party, and ask another insurer to do so.
Process of claims handling - Step 2 Advising Insurers (ECF)
Can either submit paper or electronically. Still now, not all claims can be handled electronically ie. ‘out of scope list’
Electronic Claims File (ECF) - broker can submit claim to insurers internationally. Happens prior to XCS submission.
Two parts of ECF:
1. CLASS - data messaging system / database
2. Document repository
To use ECF
Broker creates a Unique Claims Reference UCR which links to the UMR. Broker sets up claims data using UCR and UMR as references and adds information about the claim. Then the broker adds documents in the Document Repository. The CLASS system automatically sends to leaders (Lloyds and company) first. Leaders can see each others comments on the system and view the documents. Leaders then either agree or query it. Broker can see responses. The agreement parties can also request more information, appointment of an expert, note the info shared, etc.
For company markets, once the leader releases the message it sends to all company markets. No involvement of XCS.
For Lloyds, sometimes a second syndicate sees first, prior to it going to XCS
XCS then take the file and inputs data into its system, and sends to syndicates overnight
The Electronic Claims System has the ability to change agreement parties if there is a conflict of interest
Process of claims handling - Step 2 Advising Insurers (paper files)
Once broker identifies which insurers it needs to notify, it creates a paper file with information - copy of MRC, endorsements, binding authority if relevant
For company market agreement parties, broker contacts them. They should’ve already sent an electronic message
For Lloyds syndicates, sometimes no electronic message will be sent.
Leader considers file, asks questions, appoints experts if required, may decline claim
Here, Lloyds leader does not need to enter claims data in system yet, but can if it wants to.
Broker then sends file to XCS who enters data for Lloyds markets.
All agreement parties consider conflict of interests
How to deal with types of conflicts of interest
Organisational conflict - pass agreement rights onto next insurer. Broker makes note and sends requests to new combination of agreement parties
Individual conflict - Chinese Walls/Ethical Walls. Seek to manage conflict internally for eg have separate files and separate authority for who can look at what
Process of claims handling - Step 2 Claims data transmission to insurers (paper files)
Broker still uses an electronic message for company markets, supported by paper file
Once approved by company market leader, data submitted by broker is converted onto electronic message which is sent to company markets system overnight
For Lloyds’, broker does not have to send electronic message. Instead, when XCS receives the file, they input the claims data and sent to Lloyds syndicates overnight
Differences between paper/email vs electronic claims process
For paper/email, broker creates file and carries/sends around insurers. If outside of London, must be via email. For paper, Insurers wait turn to see paper file. For email/electronic, this is simultaneous. For electronic, all data/docs are held electronically and can be accessed simultaneously if using CLASS system - no-one needs to be in London.
For paper, file is taken around during work house. For email, can be looked at any time. For electronic, available almost always.
For paper, files can get lost. Not an issue with email/electronic files. For electronic, once uploaded to the system, cannot be deleted.
For paper, there might be several claims files going around. For email, this is centralised in insurers own systems. For electronic, also centralised.
For paper, broker has to physically transport file around. For email, much easier to send to next agreement party. For electronic, this is automatic.
For paper, insurers may want to keep file for a while to review. For email, information can be sent over and then discussed once reviewed. For electronic, similar to email, broker can attend meeting knowing insurer has already seen the file.
For paper, a frequent medium for reading information. For email/electronic, scanned documents usually take longer to read
ECF - documents
Broker uploads documents for all insurers to see
Sometimes insurer has documents from their experts which they can upload but brokers cannot see
Settlements during the claim lifecycle
Claim payment - can have interim payment of indemnity
Fees - expert fees paid throughout the claim process
How many Lloyds currencies are there?
Are there any restrictions?
14
For USD, claims can only be paid in USD if premium was paid in USD
Settlement - Indemnity payments
Only be paid after receiving a receipt or similar document. Stops repeat claims being paid.
Enterprise Act 2016
“Claims will be settled in a reasonable time” now subject to English Law. Insured able to pursue insurers for damage for late claims payment any time up to 12 months after claim was partially/fully paid.
Movement of claims payment - Company vs Lloyds
Company - agreement automatically triggers movement from their account
Lloyds - XCS triggers movement of money
Reviewing claims information - Indemnity
Not all policies are policies of indemnity eg personal accident
concept of indemnity - putting insured back to same position as before loss
betterment - putting insured in better position than before loss (eg replacing an old machine with a brand new one)
if no language included that deals with betterment, standard principle of indemnity applies and negotiation will have to take place
Policy features which reduce claim payment: policy limits, sublimits on perils, deductibles/excess
also consider underinsurance - claim payment reduced by equivalent proportion
Reviewing claims information - Subrogation
Insurer stepping into shoes of insured’s shoes POST payment of a claim to go against a third party
Claims leakage
Failure to obtain a recovery where one was potentially available.
HARD - forgetting to apply a deductible
SOFT - failing to obtain a recovery where one was available / paying more in experts fees than necessary because of poor management,
Fraud!
Failure to manage leakage = impact on profits
Reviewing claims information - Contribution
Insurers covering same subject-matter & same risk
Use ‘independent liability’ method to calculate liability - work out what each insurer would have been liable for if one risk
Reviewing claims information - Proximate cause
Most dominant cause of loss
If policy covers one cause, but silent on another, claim would be paid. If second excluded, not covered.
Reviewing claims information - Deductible/excess
First amounts of loss paid by insured
Must monitor this to avoid claims leakage
Reviewing claims information - Exclusions
If insurer is seeking advice on claim coverage, this is called Reservation of Rights ROR. Should be transparent with insured.
ROR is issued due to legal issue of estoppel - an insurer might be estopped from paying a claim if they lead the insured to believe there’s no problem
Signs of insurance fraud
Excessively documented claims file
Pressure to settle
Reluctance to answer questions
Nonsense
Example of claims leakage!
Insurance Conduct of Business sourcebook ICOBS 8.1.1, 8.1.2, 8.8.3, 8.3.4
FCA handbook - article re claims handling. Distinctions between consumer vs commercial clients
8.1.1.
Insurers must handle claims fairly, promptly, provide guidance on claims submission, not unreasonably reject claims
8.1.2
rejection of a CONSUMER claim is unreasonable, except for fraud, if: non disclosure of a fact that was material was not reasonable to disclose, non-negligent misrepresentation of a risk, breach of warranty/condition unless claims are connected
insurers subject to stricter rules when dealing with consumer insureds - less ability to invoke non disclosure/misrepresentation
8.8.3
Conflicts of interests
Insurers must make effort to identify and manage conflicts of interests fairly.
Disclose any potential conflicts of interest to insured at beginning
Would declining to act be better than acting?
8.3.4
If firm cannot deal with claim, should forward notification to insurer asap or inform insured immediately it cannot deal with notification (ie this is normal circumstance.. inform insurers asap of any claims!)
Conduct Risk
Insurers taking into account sophistication of their clients
Anti Money Laundering regulation
Uk regulation requires firms to have adequate processes in place to minimise financial crime
Overseas Regulations - California Fair Claims Settlement practices
Regulated differently depending on State
In california, claims handlers have to be aware on: timelines for acknowledging receipts of claims/updating insureds. Must provide info if claim is denied.
Annually, claim handlers have to be certified on this
UK EU UN Sanctions - Financial
prohibiting transfers to countries
freezing assets of a company / individual / government
How to find out about sanctions
HM Treasury / US Department of Treasury / Office of Foreign Assets Control OFAC / Crystal
Who regulates FOS and FSCS
FCA
Financial Ombudsman Service FOS
Final point in complaints for an insured against insurer. If insured unhappy with their decision, can go to litigation/arbitration. All other legal proceedings must be withdrawn prior to approaching
Free, independent service. Membership compulsory for all authorised firms including intermediaries
Operation of FOS found in FCA handbook under Disputes Resolution Complaints Sourcebook DISP
Complaints Handling - Insurers obligations
FCA requires all insurers to have a well documented complaints process which must clearly tell insureds:
- where they should complain to
- timescales a complaint will be handled
- about the existence of the FOS
- reminding that referral to FOS does not remove their legal rights
Eligible complainant under FOS
Consumer
Microenterprise (fewer than 10 employees and turnover of EUR 2m) - EU defined term
Charities with annual income under GBP6.5m
Trustees of trusts up to GBP 5m
Small businesses with annual turnover less than GBP 6.5m and fewer than 50 employees OR balance sheet of less than GBP 5m
Guarantors
When can a complainant go to the FOS
earliest of
6 months of date firm’s letter advising final decision
six years after event claimed about
three years after complainant knew or should have known they had reason to complain
if later, firm can object and say it is ‘time-barred’
What happens when FOS is involved
All authorised firms must comply with FOS
FOS requests all information
Aims to reach conclusion within three months
Both parties have right to appeal initial outcome. If so, one panel member will make a final decision
FOS acts fair and reasonable, following FCA guidelines and good practice.
How does FOS award redress
Money award - maximum is GBP375k for complaints referred to FOS about things that happened after 1 April 2019. GBP 170k to complaints referred to FOS about things that happened before 1 April 2019
FOS can recommend other figures but not binding on firms. If referral before April 2022, figures can be lower
Directions Award - telling firm what they need to do to make things right for customer. either pay claim, apologise to customer etc.
If complainant accepts, it is binding on respondent. if they reject it, they are not bound and can pursue matter in court.If not respond to letter it is treated as a rejection.
Who funds the FOS
General levy paid by all firms
case fee payable by firm to which complainant relates
Lloyds complaints department
own department, acts as interface between FOS and MGAs. Only handles complaints by those eligible for FOS. Works to resolve complaints prior to FOS.
Financial Services Compensation Scheme FSCS
Lloyds is a member of the FSCS. Levy is paid out of central fund.
Protects insureds against insurers who cannot pay valid claims
General rules
- 100% protection for compulsory insurances, indemnity insurances, long term insurance (pension/life), and certain injury/sickness claims
- 90% protection for other types of insurance
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