Chapter 11 - Valid Claims and Claims Settlement

Question 1

Limitation Periods

Answer 1

A fixed period of time during which formal civil proceedings must be started. Under civil law of England and Wales are fixed by the Limitations Act 1980. It does not encompass all claims as other statutes set the limitation period for some specialist claims.

Question 2

Summary of Limitation Periods Under the Limitation Act 1980

Answer 2

12 years for recovery of land.
6 years for contract, awards in arbitration, debt, negligence, breach of trust and tort.
3 years for personal injury and fatal injury/illness.
1 year for defamation/malicious falsehood.

Exceptions:
• Personal injury claim involving a child, limitation period starts when the child is 18 and runs until their 21st birthday
• Person under a mental disability may have longer to bring a claim in some cases
• A court can override the limitation date under section 33 of the Act. The court is unlikely to use this power unless there are exceptional reasons for delay

Question 3

Commencement of the Limitation Period

Answer 3

Limitation period will start to run at the time the cause of action actually arises.
In personal injury claims the date of knowledge under the 1980 Act is the date the claimant becomes aware of the following:
• The injury is significant
• The injury is directly attributable in whole or in part to the negligent acts, omissions, or breach of duty of the other party
• The identity of the defendant
For criminal acts, there are no statutory limits on the prosecution of crimes in the UK.

Question 4

Onus of Proof

Answer 4

It is usually the insured’s responsibility to prove that they have a valid claim. They do this by proving that an insured peril arose and the amount of the loss.
Insurer has its own responsibilities ensuring that:
• Cover was in force at the time of the loss
• The insured that named in the policy or a person entitled to indemnity
• The peril is covered by the policy
• The insured has taken reasonable steps to minimise the loss
• All conditions and warranties have been complied with
• Duty of fair presentation has not been breached
• No exceptions are appropriate
• The value of loss is reasonable

Question 5

Implied Duties

Answer 5

Some duties are imposed at common law. These duties are that the insured:
• Should act as though uninsured and take all reasonable steps to minimise the loss
• May need to advise the appropriate authorities in the event of loss or damage
• Must take all steps to prevent a loss from spreading
• Must not hinder the insurer in the claims investigation process
A claim will be invalid if these duties are not performed.

Question 6

Express Duties

Answer 6

Are duties written into the contract and are usually found in the claims conditions. A breach allows the insurer to repudiate the particular claim.

Question 7

Notification

Answer 7

Some notification conditions require the insured to notify the insurer as soon as possible after an event occurs that is likely to lead to a claim.
Further information is obtained by the completion of a claim form, issued by the insurer after the initial notification has been made.

Question 8

Claim Form

Answer 8

Purpose of the claim form may be summarised as to:
• Establish whether the insured is entitled to indemnity under the policy
• Provide sufficient information to permit the insurer to begin processing any claim
• Enable the insurer to take a view as to the severity of the claim
• Enable the insurer to know whether there is likely to be a claim from a third party
• Enable the insurer to consider whether any potential recovery rights may exist

Question 9

Checking the Claim Form

Answer 9

Insurers must check the answers on the claim form with those on the proposal form to ensure there has not been a breach of the duty of fair presentation.
They then check that the value of loss is reasonable.
Now common for many of these processes to be automated.
Most small claims can be dealt with quite rapidly if the claim form is filled correctly. For larger claims a claims official may visit the claimant to inspect the damage. For larger or complicated claims a loss adjuster is generally used.

Question 10

Supportive Evidence

Answer 10

Examples of supportive evidence for different types of claims:
• Theft claims. Compare details stolen on the claim form with the list given by the insured to the police.
• Accident claims. For factory accidents the engineer’s report will be obtained.
• Personal injury and sickness claims. Medical evidence and/or a doctor’s certificate is essential.
• Motor claims. Vehicle registration document is needed in the event of a total loss motor claim.

Question 11

Loss Adjusters

Answer 11

For larger and more complex claims the investigation, negotiation and settlement process is placed in the hands of a loss adjuster.
They are independent and professionally qualified. Fees are paid by the insured.
The insurer will decide what action to take or what offer is appropriate, in light of the loss adjuster’s report.
Insured may choose to employ an expert who would be a loss assessor.

Question 12

Contribution

Answer 12

Insured may have more than one policy covering the same risk against the same peril.
Under the rules of indemnity the insured is not allowed to claim more than the true amount of the loss.
Contribution is the right of an insurer to call on other insurers liable to the same insured to share the loss of an indemnity payment.
Loss x Sum insured by individual insurer / Total sums insured = Insurer’s liability

Question 13

Average

Answer 13

Some forms of insurance, notably property, if the sum insured is not adequate to cover the full value of the risk insured, the insurer will apply the average condition. The insurer only pays a proportion of the loss.
Loss x Sum insured / Value at risk = Claim payment

Question 14

Average Relief Clause

Answer 14

Many property policies include an average relief clause or special condition of average. This clause recognises that the valuation of a certain property can very during the policy period.
Average will only be applied if the proportion of average falls below a certain percentage, frequently given as 85%.

Question 15

Subrogation

Answer 15

Under common law the insured may have rights to claim against any party that caused the loss or damage in an effort to recover all or part of the loss or damage.
Subrogation condition modifies the common law position so that the insurer is entitled to take all necessary steps for enforcing rights against any party in the name of the insured. They are not entitled to obtain the amount of the recovery until they have paid the insured’s claim.

Question 16

Arbitration

Answer 16

Arbitration clause is intended to deal with any disputes for the amount to be paid in settlement of a claim. Provided that liability is admitted any dispute which arises as to the amount to be paid is referred to an arbitrator.

Question 17

Alternative Dispute Resolution (ADR)

Answer 17

Alternative means an alternative to the process of using the court system to settle disputes.
Under the Civil Procedure Rules courts are under a duty to encourage the parties to use an alternative dispute resolution procedure and to facilitate the use of such a procedure. Benefits to using ADR are:
• Speed of completion
• It can be timed to suit the parties
• It is less costly than proceeding through to a court trial
• Settlements are confidential between the parties and there is no public record

Question 18

Mediation

Answer 18

A dispute resolution process where the parties choose to participate and any agreement reached to settle the dispute is made solely by the parties themselves. Mediator is selected by the parties but makes no decisions. They act as a facilitator.

Question 19

Conciliation

Answer 19

Less frequently used form of ADR. Similar to mediation except that the conciliator’s role is to lead the parties to a settlement. Parties have to decide in advance whether they will be bound by the conciliator’s recommendations.

Question 20

ABI Personal Effects Contribution Agreement

Answer 20

Stated purposes of the ABI personal effects contribution agreement are to:
• Avoid bad publicity and criticism of the insurance industry caused by insurers referring policyholders to other insurers for payment of part or all of their claim
• Avoid costly and time-consuming handling and the payment of small contribution amounts
• Set out rules for contribution between participating insurers
It deals with claims for the loss of personal effects covered by two or more policies and applies regardless of any contribution, non-contribution or property insured elsewhere provisions.

Question 21

Bilateral Agreements

Answer 21

Rather than operate a market-wide agreement, insurers are entering into bilateral agreements with others who operate in the same market. By doing this they can engage with similar, like-minded insurers, who may share the same philosophy or underwrite the same book of risk.

Question 22

Motor Insurers’ Bureau (MIB)

Answer 22

Set up by agreement between the government and motor insurers to provide compensation for injury or damage following a motor accident where it cannot be obtained from another source.
Only concerned with Road Traffic Act liabilities.
I operates under the uninsured drivers agreement and the untraced drivers agreement.

Question 23

Uninsured Drivers Agreement

Answer 23

MIB deals with cases where there is no policy in force whatsoever. It will try to recover from the driver concerned.
Some comprehensive policies offer extra protection from uninsured drivers by waiving excesses and/or protecting the no claims bonus. The insured is required to provide the following basic details relating to the uninsured driver:
• Vehicle registration number
• Make and model of car
• Driver’s contact detail
• If possible the name and addresses of independent witnesses
Even if the other party is uninsured, if the accident was entirely the insured driver’s fault, they will be responsible for repair costs to their vehicle and the uninsured vehicle.

Question 24

Untraced Drivers Agreement

Answer 24

Covers hit and run cases where the motorist involved in the accident cannot be traced.
The MIB makes payment if the untraced motorist would be liable to pay damages to the accident victim.
Covers death and personal injury. Also covers for third party property damage up to £1.2 million, only the MIB has paid compensation for a significant personal injury to any victim of the same accident. Significant personal injury is defined as:
• Which results in death
• Four or more days of consecutive in-patient treatment was given in hospital, starting within 30 days of the accident
Compensation subject to an excess of at least £300.

Question 25

Uninsured Drivers Agreement 2017

Answer 25

Main difference to the previous agreement is the deletion from the scope of events covered of:
• The exclusion of liability for damages to a vehicle which was also insured
• The terrorism exclusion

Question 26

Untraced Drivers Agreement2017

Answer 26

I works in the same way as the previous agreement but I should note the following:
• No exclusion for vehicle damage claims where the damaged vehicle was uninsured
• An excess on property damage of £400
• Significant injury is defined as death or injury resulting in 2 nights or more inpatient treatment, or 3 sessions or more of hospital out-patient treatment
• Claimant is required to report the accident to the police if the MIB reasonably requests them to do so
• No exclusion for terrorism
• Awards to children and protected parties are subject to approval by an arbitrator in all cases
• MIB is not liable for a claim for which the claimant is entitled to receive indemnity from any person other than the Criminal Injuries Compensation Authority

Question 27

Claims Settlement Methods

Answer 27

Insurers can settle claims that arise and are accepted under a contract in a number of ways:
• Payment of money
• Payment of repairs
• Replacement
• Reinstatement
• Payment to third parties

Question 28

Third Parties (Rights Against Insurers) Act 2010

Answer 28

Finally came into effect on 01/08/2016.

Liability:
A third party does not need to first obtain judgement against the insolvent insured before issuing a claim against the insured. However, the liability of the insured must be established before any rights against the insurer can be enforced.

Insurer defences:
Insurers may use the usual defences to a claim by a third party that they would have been available to the insured.

Document request:
Provides third parties with an enhanced right to request insurance information from insurers, provided they can show a reasonable belief that liability is owed by an insured. Request has to be answered within 28 days.

Dissolved/struck-off company:
A dissolved insured company does not need to be restored for its insurers to be pursued. When both the insured and insurer have become insolvent, the third party can claim under the Financial Services Compensation Scheme.

Question 29

Enterprise Act 2016

Answer 29

Contains provisions amending the IA 2015. It requires (re)insurers to pay sums due following a claim within a reasonable time. It gives policyholders the right to claim damages if a (re)insurer’s unreasonable delay causes additional loss.

Question 30

Reserving Process

Answer 30

When a claim is first notified the insurer will endeavour to place a realistic estimate on it. This is important so sufficient funds will be available. Insurers need to maintain adequate reserves for this purpose. Accuracy of reserves is important for:
• Insurers are required to submit financial statements, including outstanding claims, each year to the Prudential Regulation Authority
• Estimates claims costs give UWs some of the information they need to set adequate premium rates
• The profitability of an insurer can be clearly seen at any time

Accurate claims reserving for an insurer involves the examination of past data on claims and use this past data to forecast projected claims.
Areas to consider when deciding on a reserve include the following:
• Does the policy have a specific limit or sum insured?
• Is an excess applicable?
• Do any other policies cover the item?
• Has a valuation been submitted for the stolen item?

Question 31

Contribution

Answer 31

Once an insurer has settled a claim in full under a policy of indemnity, it can recover from other insurers that also cover the same loss.

Question 32

Subrogation

Answer 32

In cases where a third party is believed to have caused the loss or damage, the insurer contacts the third party immediately setting out the reason it believes the third party to be at fault. Insurers advise the third party to forward it to their own insurer straight away.

Question 33

Right of Recovery

Answer 33

One right of the insurer under common law is the recovery of stolen or lost property.
The insurer will prefer to have the claim money reimbursed to them and for the insured to keep the recovered item. It is not practical, particularly if the covered item has been replaced. If the insured does not want to take it back, the insurer can sell it as salvage and set any monies received against the claim costs.

Question 34

Fraudulent Claims

Answer 34

According to ABI data, insurers detected 107,000 fraudulent claims valued at £1.2 billion in 2019. It is estimated that a similar amount of fraud goes undetected each year. This is why insurers invest in excess of £200 million each year to identify fraud.

Question 35

The Law and Fraudulent Claims

Answer 35

The IA 2015 clarified the existing law that the insurer has no liability for a fraudulent claim and is entitled to refuse all claims occurring after a fraudulent act.
Remedies for fraudulent claims under the Act apply to both consumer and non-consumer insurance contracts.
Any payments already made in relation to the fraudulent claim are recoverable by the insurer.
The insurer may treat the contract as having been terminated with effect from the time of the fraudulent act. Termination does not affect the insurer’s liability under the contract for claims occurring before the fraudulent act.

Question 36

The Insurance Fraud Bureau (IFB)

Answer 36

A not-for-profit organisation funded by the insurance industry, specifically focused on detecting and preventing organised and cross industry insurance fraud. Current focus is on personal lines.
June 2019 the IFB introduced an industry wide counter fraud intelligence sharing platform the Insurance Fraud Intelligence Hub (IFiHUB). This provides insurers with the ability to share intelligence in real time to help catch fraudsters.
IFB has partnered with Shift Technology to build a solution using AI. The new platform will be delivered in early 2022, will see the AI learn and grow as it adapts to the evolving threat of organised insurance fraud networks.

Question 37

The Insurance Fraud Investigators Group (IFIG)

Answer 37

This is a members’, not-for-profit organisation dedicated to the detection and prevention of insurance fraud. Its aim is to tackle the growing problem of insurance fraud in the UK and disrupt insurance fraudsters.

Question 38

The Insurance Fraud Register (IFR)

Answer 38

Launched in 2012, it complements the work of the IFB in detecting fraud, and of the Insurance Fraud Enforcement Department in prosecuting fraudsters. Fraudsters will be added to the IFR by their insurers.
Any data loaded must be done so in accordance with a clearly documented set of rules and compliance with these is mandatory for all users. Over 50% of the general insurance market are using IFR and work is ongoing to bring the rest of the remaining market.

Question 39

General Insurance Fraud Committee

Answer 39

Provides technical support and direction for the IFB, IFED and IFR.
One of the initiatives is extending the scope of the IFB into both property and commercial liability.

Question 40

Claims and Underwriting Exchange (CUE)

Answer 40

A computerised register of information on personal lines cases taken from insurance proposal, claims and renewal forms.
Subscribing members submit their claims data on individual claimants to the database and check the true claims history of those individuals.

Question 41

Art Loss Register (ALR)

Answer 41

Founded in 1991 through a collaboration between the insurance industry and the art world in response to increasing art theft. Operation relies on subscriptions from insurers. Its objectives are:
• To increase the recovery rate of stolen art and antiques
• To deter theft by making the resale of stolen articles more difficult

Question 42

Motor Insurance

Answer 42

Motor Insurance Anti-Fraud and Theft Register (MIAFTR2) was set up to combat fraud relating to motor vehicles and contains details of all total loss and theft claims.
Fourth Motor Insurance Directive requires all EU Member States to maintain a national database containing details of every insured vehicle. In the UK the MIB operates the Motor Insurance Database (MID). The database makes it easier to pursue cross-border claims and help with the enforcement of compulsory motor insurance requirements.

Question 43

Claims Handler

Answer 43

Claims handler plays a vital part in detecting fraud. Indicators of fraudulent claims include:
• Claims made soon after policy inception or renewal
• There is no documentation
• There is too much documentation for small claims
• The insured changes their story
• The loss was not reported to police or there is a reluctance to report it to the police
• The claim is not consistent with the insured’s lifestyle
• There is poor claims history or similar claims have been made previously

Question 44

Technology

Answer 44

Software systems have been developed to combine AI and voice recognition to detect and interpret emotion and linguistics to assess credibility of an insurance claim. Other projects include:
• An online bot which uses AI to provide quick answers to legal questions online
• Flood analysis tool which uses 3D imagine recognition to inspect images collected by drones, assessing flood-damaged areas to evaluate flood extent and depth
• For motor claims, AI can view images of vehicle damage and makes an assessment within seconds
This streamlined approach is reducing the average claims lifecycle from days to minutes.

Question 45

Consequences of Fraud

Answer 45

Insurers that don’t take the detection and prevention of fraud seriously will see the result in their bottom line. Claims costs will rise and this will impact on premiums making them less competitive in the market. They may even gain a reputation as a soft touch, this may lead to selection against these insurers.