Chapter 7 Flashcards
Efficient Claims Process Benefits
• increased customer satisfaction
• leading customers to pay higher premiums for better service
Impacts of a Loss on a Commercial Customer
• loss of trading time
• potential harm to reputation
• need to rebuild customer base
Schedule of Location and Values
to specify insured locations within the territorial scope of the policy
Initial Actions of a Claims Handler
• instruct a loss adjuster
• set diary dates for updates
• consider an initial reserve
Investigations
• weather reports
• newspaper reports
• witness statements
• police / fire brigade reports
Reservation of Rights
when a claim is accepted for handling but may later be found not covered after further investigation
Leading example in Reservation of Rights and Estoppel
Kosmar Villa Holidays plc v Trustees of Syndicate 1243
Terms affecting Indemnity
• sum insured/policy limits
• excess/deductible
• average/underinsurance
• sub limits
First Loss in Commercial Insurance
a method where the sum insured is less than full property value, covering only anticipated losses
Different Excesses in Commercial Policies
separate excesses may apply to specific risks (e.g, fire, theft, storm) as a risk management measure
Time-Based Excess
an excess where claims are only payable if a loss exceeds a certain duration (e.g: 3 days in business interruption policies)
Difference between a Deductible and an Excess
deductibles often allow a premium discount and are typically used in the commercial market
Deductible Applications
it can be applied per location or over the whole policy with specific time periods, like 72 hours for weather events
Aggregate Deductible
an upper limit on the total deductible amount the policyholder pays in a year, usually four times the individual deductible
Working Excess
the self-insured amount a policyholder pays before submitting smaller claims, often managed by company budgets
Average Clause Formula
(Sum Insured / Value at Risk) x Amount of Loss = Insurer’s Liability
Loss Adjuster factors for Valuing Damaged Stock
• inspection of stock
• record verification
• purchase receipts
• salvage value
Claims Handler’s role in Valuing Losses
to review the loss adjuster’s findings and apply policy terms to determine an appropriate claim amount
Indemnity on Property
value at the date of the loss and at the place of the loss
no claim for:
• sentimental value
• consequential loss
Indemnity on Buildings
the cost of repair or reconstruction at the time of the loss less any deduction for betterment
Indemnity on Machinery and Equipment
the cost of repair less any deduction allowance for wear and tear
alternatively: the cost of replacement, less wear and tear
Indemnity on Manufacturers’ stock, raw material, work in progress and finished stock
the cost at the time of the loss of replacing the goods or returning them to their previous condition
Indemnity on Wholesale and Retail Stock
the cost at the time of the loss of replacing the stock, including transport
Indemnity on Farming Stock
livestock and produce - the local market price
stock produced for sale - market process less any savings made on processing, handling or transport
stock on farm consumption - cover replacement at market price plus transport costs
Indemnity on Pecuniary Insurance
paid in accordance with a standard formula which is set out in the policy wording
Indemnity on Liability
the cost of any court or negotiated “out of court” settlement, plus costs and expenses
Indemnity on Marine Insurance
unvalued - value of the subject matter at the commencement of the risk
valued - for cargo the basis of valuation will typically be stated
partial loss - ships repairs or depreciation in value
Reinstatement
property that is lost/destroyed (rebuilt/replaced) or damaged (repaired/restored)
Indemnity in Reinstatement
the property should not be better or more extensive than it was when new
Reinstatement Conditions
• replacement/repair should be done as new
• rebuild on a different site is allowed if it doesn’t increase liability
• work must start promptly after damage
• adequate sum insured: if under 85%, the policyholder shares the loss proportionately
When will the Insurer NOT pay for reinstatement?
if (A) costs aren’t incurred, (B) there’s another policy without similar reinstatement terms or (C) terms aren’t followed
Business Interruption Claim Goals
to cover lost profit and any additional costs caused by the insured event
Loss of Profit calculated in Business Interruption Claims
by comparing last year’s turnover and profits to the reduced figures after the event
Basic Elements in calculating a Loss of Profit claim
• last year’s turnover and profits
• reduced turnover and profits due to the loss
• additional costs incurred (e.g recovery costs)
• savings from the interruption (e.g lower utility bills)
After Business Interruption Settlement
prompt payment is arranged, the insured may need to sign an acceptance or release form
Arbitration
a binding dispute resolution process, often used to keep disputes private and confidential
The Arbitration Act 1996
grants procedural powers to arbitrators and parties
Arbitration v Litigation
Arbitration can be as slow and costly as litigation, but is confidential and doesn’t set precedents
Arbitration Award appealing limits
appeals are limited, mainly to cases of fraud or bias by arbitrators
Mediation
a non-binding ADR process where a mediator facilitates negotiation between parties
confidential, flexible and has the presence of decision-makers with authority to settle
Mediator Role
to act as a neutral facilitator without making decisions, guiding parties to their own settlement
Advantages and Disadvantages of Mediation
Advantages
• quick
• flexible
• private
• cost-effective
Disadvantages
• non-binding
• doesn’t determine legal liability
• can add costs if done too late
Early Neutral Evaluation
a non-binding evaluation by a neutral party on the likely outcome of a court case, encouraging settlement
Expert Determination
an agreement to let an expert make a binding decision on technical disputes, often used for valuations or complex matters
What happens if ADR fails?
the dispute proceeds to litigation under Civil Procedure Rules in civil courts
