Assignment 11: The Claim Function Flashcards
Primary Claims Goals
- Complying with the Contractual Promise
The insurer fulfills this promise by providing fair, prompt, and equitable service to the insured either directly or indirectly - Supporting the Insurer’s Financial Goals
Overpaid claims can lower insurer profits and result in higher policy premiums, while underpaid claims can result in dissatisfied insureds, litigation, or regulatory oversight
Claims Information Users
- Marketing: The marketing department needs information about customer satisfaction, timeliness of settlements, and other variables that assist in marketing the insurance product
- Underwriting: Proper, consistent, and efficient claims handling enables underwriters to evaluate, select, and appropriately price loss exposures based on consistent claims costs
- Actuarial: Actuaries need accurate information not only on losses that have been paid out but also on losses that have occurred and are reserved for payment, collectively called incurred losses
Claim Investigation Reports
When claim representatives inspect accident scenes in homes or at work sites as part of the claims investigation, they sometimes notice loss exposure characteristics, either negative or positive, that were not readily apparent in the insurance application
The underwriter may adjust the premium accordingly (up, or down via credit)
Claim Trends
A number of similar claims may also alert underwriting management to a problem for a particular type or class of insured
Claims Department Contacts
Claims Department personnel are most visible to the public, so they must interact effectively with:
- The Public
- Lawyers
- State Regulators (who do market conduct audits)
Market Conduct Audit
Includes more than just claim practices; it audits all departments that interact directly with insureds and claimants
Claim Department Optimization
Measured by:
1. Structure
2. Personnel
3. Performance Measures
Third-Party Administrators (TPAs)
An organization that provides administrative services associated with risk financing and insurance
Claims Representative
A person responsible for investigating, evaluating, and settling claims
Fulfills the promise to either pay the insured or on behalf of the insured by handling claims when losses occur
Examples include:
- Staff Claims Representatives
- Independent Adjusters
- TPAs (often used by self-insured organizations)
- Producers
- Public Adjusters
Staff Claims Representatives
Employees of an insurer and handle most claims, usually while working from branch or regional offices rather than at the insurer’s home office; includes inside and field (outside) claims representatives
Independent Adjusters
An independent claims representative who handles claims for insurers for a fee
Public Adjusters
An outside organization or person hired by an insured to represent the insured in a claim in exchange for a fee
Performance Measures
Include both:
- Profitability Measures (loss ratio, including LAE)
- Quality Measures (best practices, claim audits, and customer-satisfaction data)
Loss Adjustment Expenses (LAE)
The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy
In the short-term, these can be reduced by settlement payments.
In the long-term, inflated settlement demands should be resisted, researched, negotiated, and (if necessary) litigated
Best Practices
A system of identified internal practices that produce superior performance
Claim Audit
A review of claim files to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included
Evaluates both qualitative and quantitative factors and is used to ensure compliance with best practices and to gather statistical information on claims
Compliance Measures
Compliance measures include:
- Claims Guidelines, Policies, and Procedures
- Controls
- Supervisor and Management Reviews
- Claims Audits
Claims Guidelines
A set of guidelines and instructions that specify how certain claims handling tasks should be performed by setting policies and procedures for claim handling
Diary, or Suspense
A system to remind claims personnel to perform a particular task on a claim
Activity Log
A record of all the activities and analyses that occur while handling a claim
Claims Reports
Reports might include information such as:
- Claims with reserves above a specified amount
- Claims assigned to independent adjusters
- Claims in litigation
- Claims closed by agents
- Claims with reserve changes larger than a specified amount
- Claims closed without payment by a claims representative
Access Security
A security setting that controls an individual computer user’s ability to review, enter, and change information in a claims information system.
Systems limit access to claims information by:
1. Requiring a person to enter a password maintained by the Information Systems Department
2. Restricting access to certain data in the claims information system to managers only
3. Preventing unauthorized individuals from changing crucial information in the claims information system, such as reserve amounts or claim codes
Authority Levels
A designated dollar amount assigned to claims personnel to limit the reserve amounts they can set and the payment amounts they can make
Claims Information Tracking System
Designed to automatically capture qualitative internal claim information (date, name of employee, etc.); the information cannot be altered, so it discourages fraud and identifies training needs
Supervisor and Manager Reviews
This review allows supervisors and managers to coach claims representatives on how to handle claims, on additional investigation that might be needed, and on negotiation or settlement approaches
Internal Claims Audit
A review of claim files conducted by an insurer’s staff to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included
External Claims Audit
A review of claim files conducted by organizations other than the insurer that involves reviewing overall claims handling practices; reviewing reserves and other technical details of claim settlements; investigating consumer complaints; ensuring that claims procedures were followed; and verifying that appropriate, thorough documentation was included
The Claims Handling Process
- Acknowledging and Assigning the Claim
- Identifying the Policy
- Contacting the Insured or the Insured’s Representative
4a. Investigating the Claim
4b. Documenting the Claim - Determining the Cause of Loss, Liability, and Loss Amount
- Concluding the Claim
Claims Handling Process: Identifying the Policy
This includes notifying an insured if coverage may be unavailable by issuing a non-waiver agreement or a reservation of rights letter; establishing claim or case reserves is also done in this step
Nonwaiver Agreement
A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy
Reservation of Rights Letter
An insurer’s letter that specifies coverage issues and informat the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it
Claims Handling Process: Investigating the Claim
Should be geared to obtain information that will help determine the cause of loss, the amount of loss, and liability; an insurer can find out whether subrogation is possible through this step
Subrogation
The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss
Claims Handling Process: Documenting the Claim
Three crucial parts of the claims documentation are:
- Diary Systems
- File Status Notes
- File Reports
File Reports
These include reports such as:
- Internal reports
- Preliminary reports
- Status reports
- Summarized reports
- External reports (containing information collected by claims representatives)
Claims Handling Process: Concluding the Claim
Either a payment is made (to all eligible parties included as payees) or the claim is denied (which sometimes requires a manager’s approval
Alternative dispute resolution techniques are sometimes used
Alternative Dispute Resolution (ADR)
Techniques include:
- Mediation
- Arbitration
- Appraisals
- Mini-Trials
- Summary Jury Trials
ADR reduces, but does not eliminate, the possibility that a claimant will sue and take a case to trial
Mediation
An ADR method by which disputing parties use a neutral outside party to examine the issues and develop a mutually agreeable settlement
Arbitration
An ADR method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which can be final and binding
Appraisals
A method of resolving disputes between insurers and insureds over the amount owed on a covered loss
Mini-Trials
An ADR method by which a case undergoes an abbreviated version of a trial before a panel or an adviser who poses questions and offers opinions on the outcome of a trial, based on the evidence presented
Summary Jury Trials
An ADR method by which disputing parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel of mock jurors who decide the case
Coverage Analysis
The process of examining a policy by reviewing all its component parts and applying them to the facts of a claim
Framework for Coverage Analysis – Questions
- Is the person involved covered? (Must be listed in the declarations or on an endorsement)
- Did the loss occur during the policy period?
- Is the cause of loss covered?
- Is the damaged property covered?
- Is the type of loss covered?
- Are the amounts of loss or damages covered?
- Is the location of the loss covered?
- Do any exclusions apply?
- Does other insurance apply?
Specified Causes of Loss Coverage
Also called named-perils coverage, it is coverage for direct and accidental loss caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance transporting the covered auto
Special Form Coverage
Also called all-risks or open-perils coverage, it is property insurance coverage covering all causes of loss not specifically excluded
Direct Losses
A reduction in the value of property that results directly and often immediately from damage to that property
Indirect Losses
A loss that arises as a result of damage to property, other than the direct loss to the property; these reduce future income and/or increase future expenses
Types of Damages
For liability claims, damages for which the insured may be liable are of two types:
- Compensatory Damages (special damages, general damages)
- Punitive Damages (not always covered)
Compensatory Damages
A payment awarded by a court to reimburse a victim for actual harm
Special Damages
A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person’s loss, such as medical expenses or lost wages
General Damages
A monetary award to compensate a victim for losses, such as pain and suffering, that does not involve specific, measurable expenses
Punitive Damages
A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party’s actual damages
Exclusions to Coverage
These can involve:
- Persons
- Causes of loss
- Types of property
- Types of damage
- Other circumstances
