Chapter 4

Question 1

Basic Info Needed to start a Claim

Answer 1

• insured’s name
• policy number
• date, time and place of incident
• description of what happened
• details on the damage
• date claim was reported

Question 2

Outcomes after Claim Review

Answer 2

• accept the claim
• get more info (from adjusters, lawyers, police etc)
• reject if not covered

Question 3

Underwriting Checks

Answer 3

• comparing the claim with original policy can help catch any missing or incorrect info the insured gave at sign-up
• underwriters can adjust policy terms, premiums or choose not to renew after finding missing info

Question 4

Obligations of the Insured

Answer 4

report issues likely to lead to future claims, even if no claim is made yet

Question 5

Duty of Disclosure

Answer 5

insured must update the insurer on any new or corrected info during the claim

Question 6

Brokers

Answer 6

• act on behalf of the insured to submit claims info to the insurer
• if a broker does not pass on important information, the insured may have a claim against the broker

Question 7

Managing General Agents and Third Party Administrators

Answer 7

• MGAs must forward all claims they can’t handle directly to the insurer immediately
• TPAs handle only specific claims and must send others to the insurer

Question 8

Why does an insurer need individual claims reserves?

Answer 8

for underwriting, management, accounting, statistical purposes and actuarial department use

Question 9

Reserving Philosophy

Answer 9

conservative or optimistic

Question 10

Uses of the Claim Reserve

Answer 10

• indicates the probable cost of a claim, helping to decide how much to spend on investigations and which handler to assign
• underwriters can use this to assess loss experience and adjust business rates

Question 11

Incurred but Not Reported (IBNR)

Answer 11

• reserved for claims that have happened but haven’t been reported yet
• helps assess the insurer’s profits or loss by accounting for future claims

Question 12

Step-Laddering of Reserves

Answer 12

• starting with a low reserve and gradually increasing it, leading to inaccurate reserve estimates
• if new information changes the claims value, the reserve should be changed

Question 13

Reserving to Exposure for Liability Claims

Answer 13

• based on the estimate cost of damages and the insured’s probability of paying
• example; if a claim is worth 385k with a 40% chance of payment, the reserve might be set at £154k

Question 14

Costs, Fees and Expenses

Answer 14

legal and adjustment costs, and sometimes VAT should be included in reserves

Question 15

Why itemise costs in reserves?

Answer 15

to keep track of expenses accurately , especially when claims are complex or involve third-party liabilities

Question 16

Limits of Indemnity, Deductibles and Partial Payments

Answer 16

• reserves should account for any policy limits, deductibles or excess
• a reserve with partial payments should be reduced by each payment to keep the reserve accurate

Question 17

Claims Reserve is Used To

Answer 17

• provided an indication on the relative seriousness of the claim enabling decisions such as how much to spend on external investigations
• enable senior management to assess its importance and so ensure its allocation to a claims handler
• helps underwriters decide what rates to charge on the business
• provide input into the accounts of the insurer