Chapter 7

Question 1

Efficient Claims Process Benefits

Answer 1

• increased customer satisfaction
• leading customers to pay higher premiums for better service

Question 2

Impacts of a Loss on a Commercial Customer

Answer 2

• loss of trading time
• potential harm to reputation
• need to rebuild customer base

Question 3

Schedule of Location and Values

Answer 3

to specify insured locations within the territorial scope of the policy

Question 4

Initial Actions of a Claims Handler

Answer 4

• instruct a loss adjuster
• set diary dates for updates
• consider an initial reserve

Question 5

Investigations

Answer 5

• weather reports
• newspaper reports
• witness statements
• police / fire brigade reports

Question 6

Reservation of Rights

Answer 6

when a claim is accepted for handling but may later be found not covered after further investigation

Question 7

Leading example in Reservation of Rights and Estoppel

Answer 7

Kosmar Villa Holidays plc v Trustees of Syndicate 1243

Question 8

Terms affecting Indemnity

Answer 8

• sum insured/policy limits
• excess/deductible
• average/underinsurance
• sub limits

Question 9

First Loss in Commercial Insurance

Answer 9

a method where the sum insured is less than full property value, covering only anticipated losses

Question 10

Different Excesses in Commercial Policies

Answer 10

separate excesses may apply to specific risks (e.g, fire, theft, storm) as a risk management measure

Question 11

Time-Based Excess

Answer 11

an excess where claims are only payable if a loss exceeds a certain duration (e.g: 3 days in business interruption policies)

Question 12

Difference between a Deductible and an Excess

Answer 12

deductibles often allow a premium discount and are typically used in the commercial market

Question 13

Deductible Applications

Answer 13

it can be applied per location or over the whole policy with specific time periods, like 72 hours for weather events

Question 14

Aggregate Deductible

Answer 14

an upper limit on the total deductible amount the policyholder pays in a year, usually four times the individual deductible

Question 15

Working Excess

Answer 15

the self-insured amount a policyholder pays before submitting smaller claims, often managed by company budgets

Question 16

Average Clause Formula

Answer 16

(Sum Insured / Value at Risk) x Amount of Loss = Insurer’s Liability

Question 17

Loss Adjuster factors for Valuing Damaged Stock

Answer 17

• inspection of stock
• record verification
• purchase receipts
• salvage value

Question 18

Claims Handler’s role in Valuing Losses

Answer 18

to review the loss adjuster’s findings and apply policy terms to determine an appropriate claim amount

Question 19

Indemnity on Property

Answer 19

value at the date of the loss and at the place of the loss

no claim for:
• sentimental value
• consequential loss

Question 20

Indemnity on Buildings

Answer 20

the cost of repair or reconstruction at the time of the loss less any deduction for betterment

Question 21

Indemnity on Machinery and Equipment

Answer 21

the cost of repair less any deduction allowance for wear and tear

alternatively: the cost of replacement, less wear and tear

Question 22

Indemnity on Manufacturers’ stock, raw material, work in progress and finished stock

Answer 22

the cost at the time of the loss of replacing the goods or returning them to their previous condition

Question 23

Indemnity on Wholesale and Retail Stock

Answer 23

the cost at the time of the loss of replacing the stock, including transport

Question 24

Indemnity on Farming Stock

Answer 24

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

Question 25

Indemnity on Pecuniary Insurance

Answer 25

paid in accordance with a standard formula which is set out in the policy wording

Question 26

Indemnity on Liability

Answer 26

the cost of any court or negotiated “out of court” settlement, plus costs and expenses

Question 27

Indemnity on Marine Insurance

Answer 27

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

Question 28

Reinstatement

Answer 28

property that is lost/destroyed (rebuilt/replaced) or damaged (repaired/restored)

Question 29

Indemnity in Reinstatement

Answer 29

the property should not be better or more extensive than it was when new

Question 30

Reinstatement Conditions

Answer 30

• 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

Question 31

When will the Insurer NOT pay for reinstatement?

Answer 31

if (A) costs aren’t incurred, (B) there’s another policy without similar reinstatement terms or (C) terms aren’t followed

Question 32

Business Interruption Claim Goals

Answer 32

to cover lost profit and any additional costs caused by the insured event

Question 33

Loss of Profit calculated in Business Interruption Claims

Answer 33

by comparing last year’s turnover and profits to the reduced figures after the event

Question 34

Basic Elements in calculating a Loss of Profit claim

Answer 34

• 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)

Question 35

After Business Interruption Settlement

Answer 35

prompt payment is arranged, the insured may need to sign an acceptance or release form

Question 36

Arbitration

Answer 36

a binding dispute resolution process, often used to keep disputes private and confidential

Question 37

The Arbitration Act 1996

Answer 37

grants procedural powers to arbitrators and parties

Question 38

Arbitration v Litigation

Answer 38

Arbitration can be as slow and costly as litigation, but is confidential and doesn’t set precedents

Question 39

Arbitration Award appealing limits

Answer 39

appeals are limited, mainly to cases of fraud or bias by arbitrators

Question 40

Mediation

Answer 40

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

Question 41

Mediator Role

Answer 41

to act as a neutral facilitator without making decisions, guiding parties to their own settlement

Question 42

Advantages and Disadvantages of Mediation

Answer 42

Advantages
• quick
• flexible
• private
• cost-effective

Disadvantages
• non-binding
• doesn’t determine legal liability
• can add costs if done too late

Question 43

Early Neutral Evaluation

Answer 43

a non-binding evaluation by a neutral party on the likely outcome of a court case, encouraging settlement

Question 44

Expert Determination

Answer 44

an agreement to let an expert make a binding decision on technical disputes, often used for valuations or complex matters

Question 45

What happens if ADR fails?

Answer 45

the dispute proceeds to litigation under Civil Procedure Rules in civil courts