Chapter 10: Claims Handling Flashcards
Claims and other departments: UWs
- Report problematic wordings in intepretation
- Advise on clarity of wordings
- Provide claims data for risk renewal
- Liaise if claim is outside scope of coverage
- Discuss commercial pressures
Claims and other departments: Outward RE
- Need to know which RE have claims control or co-op clauses
- Provide adequate data
- Keeps claim data up to date
Claims and other departments: Complaints
- Provide clear claim handling info to enable handlers to deal with issues properly
- Complaints should provide advice on regulatory information to Claims and UWs
Claims and other departments: MI
- Provide input on system designs
- Review reports together to ensure data reported properly
Claims and other departments: Legal
- Outsourcing claims
- Liaise if claims go into litigation
- Legal advise on any issues of wordings
Claims and other departments: Compliance
- Claims handlers are well trained
- Manager should make sure staff are aware of regulations
Claims and other departments: Marketing
- Highlight any issues that have arisen where clients do not understand the product
- Claims is a publicity tool
Claims and other departments: Senior management
- report large claims
- report matters of wider importance
Claims and other departments: Finance
- ensure early warning given on large payments
- liaise in cases of high volumes of claims
Brokers role in claims process
- first point of contact for insured
- first party to find out about any claims (first advice)
Broker action upon First advice / First notification
- Broker must gather as much info as possible
- Review the MRC
- Work out which insurers are on risk
- Work out the best way to present the claim (electronically / paper file)
Brokers role on ongoing basis for claims
- Provide updated info to insurers provided by clients/experts
- Negotiate on behalf of their client
- Receive any claims funds and transmit onwards
Basis of rules for claims in Lloyd’s Market
Lloyd’s Claims Lead Arrangements (prev Lloyd’s Claims Scheme)
Basis of rules for claims in IUA Company Market (marine and aviation)
IUA Claims handling agreements
Basis of rules for claims in IUA Company Market (non-marine)
No binding possible - each insurer agrees for its own share
IUA Company Market (non-marine)
- members of that market are not prepared to agree to one leader making claims decisions
- broker needs to obtain agreement from all individual insurers on the risk
- Only exception is companies setting up an automatically bypassing claims agreement system if share is below limit
IUA Company market - Marine business (not excess of loss)
Lloyds involvement = one company can bind the rest of the Company market
No lloyds = first 2 companies must agree
IUA Company market - Aviation (not excess of loss)
If direct = first 2 companies must agree
if Fac RI = Lead only
IUA Company market - Excess of loss RI
Always the first 2 companies
Types of company grouping
Company can be identifed as being part of a non-marine or marine/aviation grouping by code allocation
Lloyds Claims Lead Arrangements
- Issued by Lloyd’s under byelaws
- Claims handling standard under Lloyd’s Market
- Basic rules concerning agreement parties required for claims
Complex claim
Claim with 2 leaders
Standard claim
1 leader
Financial criteria for a complex claim
Amount claimed
Net of deductibles/excess
If the Lloyd’s share on a single risk is:
- More than £1 million for 3rd party business
- More than £2 million for 1st party business
- More than £5 million for XoL RI
- if a risk code covers both 1st and 3rd business claims adjuster must decide the level to be
Non-Financial criteria for a complex claim
- There is a claim for extra contractual damages / damage in excess of the policy limits
- Allegation against insurers of non-compliance with regulatory requirements with claims handling
- There are active/potential dispute resolution proceedings
Dynamic Triage
- Claims can move category during lifecycle
- might be complex based on its facts rather than value but downgraded if facts change
Responsibilities for leader under CLA
- Ensure watch list codes applied to claims to allow follows to monitor situations
- Send structured Material Development Communications and calling market meetings
Single Claims Agreement Party (SCAP)
- Streamlining the handling and arrangement of small, less complex claims
LMA9150 can be put on OM and MRCs
If lloyds lead agrees to the clause every other participant is bound by the decision
Value has to be less than £250,000 or equivalent and claim neither complex or controversial.
If a claim is handled by SCAP rules, all other insurers lloyds or otherwise are applied to it
Role of Xchanging in claims process
- XCS maintains Lloyd’s Market claims database
- Includes entering data
- Sending out messages to Lloyd’s insurers and moving funds
- Lead can delegate authority to handle claims elsewhere (can be to XCS)
Technical processing
Process of XCS moving funds from syndicates to brokers
Claims expert
- Used to investigate claim
- Defend the insured in liability cases
- Appointed via the broker and their reports are sent to the insurer via the broker
- May be appointed for advice only (in particular when concerned about coverage under a policy)
Types of experts used in claims process
- Lawyers
- Loss adjusters
- Loss assessors
- Surveyors
- 3rd party administrators
- Accountants for business interruption type claims
- Investigators
- Specialist expects (fire investigators)
- Average adjusters specialised in marine
- Translators/Interpreters
- Subrogation/recovery specialists
Terms of Engagement
- Issued by insurers to help experts what is required of them
Process for claims handling
- broker identifies combination of insurers after notified of loss
- Broker submits ECF
- Agreement parties respond to broker
- (lloyds only) XCS enters claims data onto claims system
- Broker receives messages which are passed onto APs
- APs agree funding, funds are debited to broker
- Broker updates files and repeats process
expections to first notification of loss
PI - Insures nominate a lawyer to be point of contact for insured to notify a claim to
Cargo - Insurers anticipate the insured will notify a local surveyor
Conflict of interest with claims handling examples
- PI: two different experts being sued due to the same underlying problem
- Marine Hull: Handling claims for both vessels in a collision
- Aviation: Dealing with product liability claims for the manufacturer and distributor
Conflict of interest in claims handling
- Insurer has to consider whether it can be appropriately managed internally
-
Conflict of interest in claims handling is too substantial
- insurer will consider declaring organisational level conflict
- will give up agreement party role
Electronic Claims File (ECF)
- way broker submits claims data
- not all claims can be handled this way
- Broker must establish out of scope list
2 components
- Data messaging system (CLASS)
- Document repository
ECF process
- Broker sets up UCR
- Each claim linked to policy (UMR)
- Broker sets up claims data with UMR and UCR
- All documents added to repository
- Once leaders have considered the presentation, agree or query.
- (If Companies), as soon as leaders release message, system feeds data top all companies with no XCS involvement
- (If lloyd’s), If there is a 2nd syndicate involved, XCS can send the information to the 2nd syndicate
- XCS takes the data in every file and copies it into its own system
2 types of conflict of interest
Organisational conflict
Individual Conflict
How to deal with Organisational conflict
- Insurer decides as whole they cant be AP on claim and pass role on
- Still has to pay its share of claim
- Only impacts decision making role
How to deal with individual conflict
- Strategy known as Chinese Walls or Ethical Walls
- manages conflict internally
- The insurer’s claims adjuster ensures files are clearly marked to tell broker who to see within organisation
Payment on account
Monies paid at any time during a claims lifecycle as an interim payment of indemnity
How many currencies can lloyd’s settle claims?
14
Enterprise Act 2016
- Implied claims will be settled in a reasonable time needs to be in any insurance contract subject to English law
DCA/TPA
- 3rd Party administrator used to handle claims when claims handling authority is delegated in Binders
- receive info from broker/insured
- refer anything outside their authority to their principals (APs)
- send claims bordereaux
Loss fund
- amount of money insurers provide coverholder/TPA in advanced as money upfront
- end of contract, returned to insurer in full
FCP (Faster claims payments)
removes the need for coverholders/DCAs to hold loss funds
Things to consider when reviewing claims info
Indemnity
Subrogation
Contribution
Proximate Cause
Deductible/Excess
Exclusions
Underinsurance
Subject matter is not insured for its full value so insurers have the right to reduce claim by equal proportion
Contribution example
2 policies 1 claim
claim = £100,000
Policy 1 limit = £50,000
Policy 2 limit = £100,000
Policy 2 pays 2x as much as policy 1 if presented individually
split between policy would 2/3 (33,333 Policy 1 and 66,667 policy 2)
Reservation of Rights
- Warning the insured that they think there may be a problem with the claim
Key insurance fraud triggers
- Excessively documented claims file
- Pressure to settle
- Reluctance to answer questions
- Stories don’t add up
UK Claims regulation
- ICOBS in the FCA handbook includes chapter on claims handling
ICOBS 8.1.1
Insurer must
1. Handle claims Promptly and fairly
2. Provide reasonable guidance to help a policyholder make a claim
3. not unreasonably reject a claim
4. settle claims promptly once settlement terms are agreed
ICOBS 8.1.2
Rejection of specifically a CONSUMER is unreasonable when:
- Non-disclosure of a fact material to risk when there was no reason to expect it to have to be disclosed
- mis-representation of the fact material
- breach of warranty
Consumer rights act 2015
- requirement to perform a service within a reasonable time
Conduct risk
- Insurer has to take into account sophistication of client
- must not put any barriers in the way of making a claim.
ICOBS 8.8.3
- firms must mange conflicts of interest fairly
- SYSC 10 requires brokers to take reasonable steps to identify Conflicts
ICOBS 8.3.4
- if no authority to deal with claim, forward to undertaking deparmtent promptly or inform policyholder
Claims handling in us
Handling regulations vary state on state
Some have their own
Californian claims handling
- timelines for acknowledging receipt of claim
- timelines for updating insured on ongoing investigation
- info insured should be given if claim is denied so they can complain to California department of insurance
Sanctions
- prohibit funds transfer
- freeze assets of company/individual
- freeze assets of a gov
Sanctions with claims
Must be careful whom claims are paid to
Insured may be acceptable but the ultimate receiver is not
FSCS
Financial services compensation scheme
Protect insured for when insurer can’t pay
100% FSCS PROTECTION
- compulsory insurance
- PI
-long term insurance (pensions) - certain injury claims
90% FSCS protection
- claims on insurance policies with no upper limit
What should be communicated in complaints handling procedure
- Who to contact
- Timescales that will be applied for resolution/consideration
- The fact that the FOS exists
- The fact that referring the matter to the FOS does not remove any legal rights
FOS
Financial Ombudsman Service
Free, independent and impartial service to resolve disputes
- Membership is compulsory for authorised firms and intermediaries
DISP
Dispute resolution: Complaints Sourcebook
- FCA Handbook
What disputes do the FOS deal with
Have to be eligible complainants
- Consumer
- Micro enterprise (less than 10 employees) and turnover <2 mill
- Charities with less than 6.5 mil income
- Trust trustees with NAV <5 mil
- Small business with turnover <6.5 mil and fewer than 50 employees or balance <5 mil
- Guarantors
Earliest complaint can go to FOS
- 6 months after the date of a firms letter advising of final decision
- 6 years after even complained about
- 3 years after complainant knew or should’ve known they had cause for complaint
Time Barred
If dates of complaints have expired org can object to FOS taking on complaint
- can be considered by the FOS still if there are exceptional circumstances (i.e. pension transfers)
FOS time line
Aim to answer within 3 months
FOS Redress Award: Money Award
- Tell the firm what specific sum of money it should pay to cover financial losses suffered.
FOS may recommend higher fee if appropriate
FOS may decide firm should pay interest on top. (8% unless claim before April 1993)
Maximum value under money award: Act/omission occured after 1st April 2019
430,000
Maximum value under money award: Act/omission occurred before 1st April 2019
195,000
FOS Redress Award: Directions award
- Tell firm what actions need to happen to make things right
- Pay insurance claim that was earlier rejected
- Calculate and pay redress according to regulator’s formula
- Apologise personally to customer
Must be notified in writing to both complainant and respondent
can reject/accept, if rejected it can go to court
How is FOS funded
- General levy paid by all firms
- Case fee payable by the firm to which the complaint relates
Lloyd’s and FOS
Lloyds have their own complaints department which acts as an interface between FOS and Managing Agents
- London market insurer can receive complaint from overseas clients as well as UK based
