Chapter 5 Flashcards
Cost Efficiency in Claims Handling
• choosing the correct investigation method
• balancing the claim’s size and complexity
• using approved processes and suppliers
Key Considerations for Claims Handlers
• promptly deciding if a claim is covered
• keeping policyholders informed
• minimising complaints
Unfair Claims Practices Prohibited in the USA
• misrepresentation of facts or policy provisions
• failure to acknowledge or promptly act on communications
• not maintaining reasonable standards for prompt investigations and processing
• failing to deliver prompt, fair and equitable settlements
• providing inadequate explanations for denial of coverage
• refusing to pay a claim without a reasonable investigation
California Insurance Code
unfair claims settlement practises are knowingly committed on a single occasion or frequently enough to indicate unfair and prohibited practice
aims
• set minimum standards for claims handling
• promote good faith
• ensure prompt, efficient and equitable settlement of claims
• discourage and monitor false and fraudulent claims
Key Requirements under CFCSPR
• conduct a thorough, fair and objective investigation
• acknowledge claim notice within 15 days, detailing needed information and providing assistance
• start investigating within 15 days of notification
• respond fully to claimant communication within 15 days
• accept or deny the claim within 40 days, explaining any partial denial
• ensure annual training for all claims handlers
• avoid making settlement offers that are “unreasonably low”
Australian General Code of Practice
• aims to raise service standards and protect the rights of policyholders by being open, fair and honest
• a voluntary code but over 90% of insurance providers are signed up to it
Three Requirements under the Australian Code of Practice
• conduct claim handling honestly, fairly, transparently and timely
• notify the policyholder of a decision within ten business days
• keep the policyholder informed of claims progress at least every twenty business days
Australian Financial Complaints Authority (AFCA)
provides free and binding dispute resolution to consumers and small businesses as part of the code
Handling Claims in Non-UK Jurisdictions
• is there a code of practice?
• what rules and timescales apply?
• do claims handling systems need amendments for local processes?
• do claims adjusters require specific training?
• can existing experts cover the new jurisdiction?
• are there language or cultural issues?
• what bribery or sanction risks might arise?
Bribery and Sanction Risks in International Claims
assessing and mitigating increased risks of bribery or sanctions that may be present in the new jurisdiction
Underwriting Fraud
when a policyholder or applicant misrepresents or omits important information during application to benefit financially
Staged Incidents
situations where loss, damage or injury is caused deliberately to generate a fraudulent claim
Material Misrepresentation
a real loss, injury or incident where the extent of damage or injury is exaggerated for a higher claim payout
Nature of the Loss Fraud Indicators
• unrealistic loss circumstances
• inconsistencies in the story
• items in the claim that don’t match policyholders lifestyle
Documentation Issues as Fraud Indicators
• unprofessional-looking documents
• incorrect or missing contact info
• mismatched signatures
• lack of supporting evidence
Arson Claim Fraud Indicators
• financial troubles
• fire occuring in early hours
• inactive security systems
• inventory listing seasonal/out of stock
• no sentimental valued items lost
Stolen Vehicle Fraud Indicators
• lack of vehicle documents
• history of motor theft claims
• unusual theft location
• no signs of forced entry on recovery
Claims and Underwriting Exchange (CUE)
a database used to detect repetitive or duplicate claims across motor, home and other insurance types
Motor Insurers’ Anti-Fraud and Theft Register
it identifies fraud in motor insurance by cross-referencing data with the DVLA
Insurance Fraud Register (IFR)
a national database of known insurance fraudsters to help detect and prevent fraud
Insurance Act 2015 on Fraud
the insurer can deny the claim, recover payments made and terminate the policy from the date of the fraud
Britton v. Insurance Company (1866)
• good faith is required at the time of formation of the insurance contract
• this duty of good faith exists throughout the policy period and so extends to the claims process
Black King Shipping Co v. Massie (The Litsion Pride) 1985
• the ship owners deliberately tried to evade paying additional premiums by slipping in and out of the Gulf, leading to the ship’s loss by rocket attack
• established the right to avoid an insurance contract when utmost good faith is lacking is a right of avoidance ab initio
Orakpo v. Barclays Insurance Services (1995)
• the policyholder exaggerated a claim for £265,000 by overstating the number of tenants affected
• the claim was deemed fraudulent, discharging the insurer from all liability despite no specific forfeiture clause in the policy
Joseph Fielding Properties (Blackpool) Ltd v. Aviva Insurance Ltd (2010)
• the insured presented a condition that allowing avoidance for fraudulent claims did not apply f a lesser, non-fraudulent claim could have been made
• the judge rejected the insured’s argument
Nsubuga v. Commercial Union (1998)
if fraud is present in any part of a claim, the forfeiture clause applies to all sections of the policy, voiding the entire claim
Agapitos v. Agnew (2003)
• considered the concept of a ‘fraudulent device’
• insured believed he had suffered the loss claims but seeks to improve or embellish the facts surrounding the claim by some lie
• court found the insurer to be entitled to reject the claim
AXA General Insurance Ltd v. Gottlieb & Gottlieb (2005)
• the insured submitted fraudulent documents for two claims while the other two claims were genuine
• court of appeal confirmed that insurers could recover all sums paid on all claims if any part was fraudulent
• applying the rule from The Star Sea
Galloway v. GRE (1999)
• the policyholder made a small fraudulent claim (£2000) alongside a larger genuine claim (£16,133)
• the entire claim was avoided as the fraudulent claim was treated as if it was the only claim
Criminal Justice and Courts Act 2015
• addresses fraudulent personal injury claims brought by third parties
• came into force on 13 April 2015
Section 57
• allows defendants to seek dismissal of a personal injury claim based on fundamental dishonesty
• the court must be satisfied, on the balance of probabilities, that the claimant was fundamentally dishonest
• the court must dismiss the entire claim unless doing so would cause substantial injustice to the claimant
Example Cases of Section 57
• Mpoznu Hussein Sheikh v. London General Transport Services Ltd
• Summers v. Fairclough Homes
• Fari v. Homes for Harigney
• Basir v. Larizadeh
• Woodger v. Hallas
Subrogation
the insurer’s right to recover a claim payment by taking over any rights the insured has against a third party to prevent a profit from a loss
Castellain v. Preston (1883)
the seller had to repay £330 from the insurance to prevent making a profit after receiving full payment from the buyer
Action in the name of the insured
• the insurer must bring the action in the name of the insured
• the only exception to this is claims under the Riot Compensation Act 2016, where insurers may sue in their own name
Recovery Scenarios
• recovery greater than the loss - insured is entitled to surplus
• recovery less than the loss - insured keeps it if they paid the full claim
• recovery is equal to the loss - the insurer retains their payout and any balance is held for the insured
Contractual Waiver of Subrogation
an insurer’s agreement not to pursue certain associated third parties to avoid conflicts of interest
Ex-Gratia Payments in Subrogation
they are not entitled to subrogation rights
Abandonment V Subrogation
abandonment lets insurers take ownership of salvaged property, subrogation allows them to pursue third parties
Contribution
ensures insurers share the loss fairly when double insurance exists, preventing the insured from profiting from a single loss
When does Contribution arise?
when two or more policies cover the same subject, peril and interest, are each liable for the loss
Rateable Proportion Clause
states that each insurer will only pay a portion of any loss when multiple policies cover the same risj
Maximum Liability Method
insurers share the loss based on each policy’s maximum coverage, typically used when policies cover identical property without average
Independent Liability Method
each insurer’s liability is assessed as if their policy were the only one in force, then they share the loss proportionally
Market Agreements
agreements where insurers waive subrogation or contribution rights to reduce disputes and administrative costs
Abandonment in Marine Insurance
the insured can abandon the subject for a total loss claim, but must serve a notice of abandonment
Total Losses in Non-Marine Insurance
• does not recognise constructive total loss, only actual total or partial loss
• if insurers pay for a total loss, they can claim any remaining value (salvage), supporting indemnity and preventing profit from a loss
Reinsurance
• “insurance for insurance companies”
• protects them by sharing risk with reinsurers or buying protection against losses
Two main types of Reinsurance
• proportional
• non-proportional (excess of loss)
Facultative Reinsurance
reinsurance that covers individual underlying insurances on a case-by-case basis
Treaty Reinsurance
reinsurance that covers an entire account or book of business, protecting many risks at once
Proportional Reinsurance
reinsurers receive a proportion of the premium and pay the same proportion of any claim
Excess of Loss reinsurance
protects against large or unusual losses and indemnifies based on specified occurrences in a separate contract
Insurance Company of Africa v Scor (UK) Reinsurance Company Limited (1985)
“Follow the Settlement”
• claim must fall into contract terms
• claim adjusted in a proper manner
• absence of fraud
Claims Co-Operation and Claims Control
provisions allowing reinsurers to assist in handling claims or take over decision-making, often conditions for liability
