Chapter 7 Flashcards
What is leakage in insurance claims?
Leakage refers to the overpayment of claims, where the actual settlement exceeds what is necessary to fulfill the policy terms.
What are soft and hard leakages?
Soft leakage: Subjective and harder to quantify, such as failure to adjust for wear and tear.
Hard leakage: Easier to identify, like not deducting a policy excess.
What are some causes of leakage?
Leakage can be caused by poor staff training, bad business processes, or failure to check details like deductibles, policy limits, and salvage recovery.
What steps can be taken to reduce leakage?
Senior management focus
Employee skills and training
Supervising staff
Quality management
IT checks
Fostering a culture of accuracy
How can IT systems help prevent leakage?
Computer systems can prevent payments being made without applying deductibles or warn users about potential errors.
Why is monitoring financial performance important for insurers?
To ensure the company remains solvent, can pay claims, satisfy regulators, maintain management control, and fulfill its liabilities.
What is Solvency II and its relevance to insurers?
Solvency II is an EU Directive requiring insurers to have sufficient capital reserves to cover potential claims. It remains applicable in the UK post-Brexit.
What are the three pillars of FCA supervision?
Firm Systematic Framework (preventative work)
Event-driven work (resolving issues that have occurred)
Issues and Products (campaigns addressing sector-wide risks)
What is the difference between fixed portfolio and flexible portfolio firms under the FCA?
Fixed portfolio firms: Large firms requiring high-level supervision with named supervisors.
Flexible portfolio firms: Smaller firms supervised through thematic work and communication.
What are the two main components of an insurer’s annual reports and accounts
Profit and Loss Account – Shows transactions during the financial year.
Balance Sheet – Shows assets and liabilities at the end of the year.
How does ESG impact the insurance claims process?
ESG considerations influence environmental impacts, social responsibility, ethical practices, risk assessments, and product development in claims handling.
Give an example of how insurers incorporate environmental factors into claims handling.
Insurers may encourage policyholders to use eco-friendly materials when rebuilding after a natural disaster.
The terms of which Act require a company to produce annual accounts?
The Companies Act 1985
Management accounts enable an insurer to manage its key operations. How are these LEAST likely to be used by an insurer?
To determine asset valuations.
When determining a strategy for its claims management, senior management will want to focus on:
clear claims procedures, including reserving practices.
