General Principles Flashcards
The claims department can be seen as the ‘shop window’ of the insurance company.
True
Claims Department
It does not matter how competitive an insurance company’s premiums are, or how efficiently they conduct their underwriting administration, if a claim is not properly and fairly dealt with this is where an insurer will be judged.
True…
However, an insurer has obligations to every policyholder, all of whom have contributed to the common pool from which claims are paid.
True
Insurer obligations
There are more interests than those of the individual claimant to be considered and, as we will see later, insurers MUST always treat all their policyholders fairly.
True…
For this reason, the claimant has certain obligations that they have to meet before any settlement will be paid.
True
Claimant/policyholder/insured obligations
NOTE: The term policyholder or insured refers to the person or party purchasing the insurance.
True
Claimant/policyholder/insured obligations
When they make a claim against the policy, we refer to that person as the claimant, although they will still be the ??
Policyholder/insured.
What is A Legal requirements for a claim
When someone takes out an insurance policy, a legally binding contract is formed between the insurer and the insured.
What does the policy document represent?
Proof of this and issued by the insurer
Most policies provide indemnity to the insured.
TRUE
Question 1.1
Think back to your earlier studies, what do we mean by the term ‘indemnity’?
a. Providing the insured with something similar to that which they had prior to the
loss.
□
b. Placing the insured in the same financial position as they enjoyed prior to the loss. □
c. Providing the insured with replacement for their loss, whatever the cost. □
B
When an insured makes a claim, it is their responsibility to prove that they have a valid claim.
This is known as onus of proof.
In these cases, the insured would still need to prove a valid claim, but the insurer would then generally handle the negotiation and claims settlement aspects.
True
Legal requirements of a claim = Insured peril arose
The amount payable could be a court award or a negotiated settlement, so the insured would not be involved in proving the amount of the claim
(Referred to as the quantum).
The insured would not be the one receiving the settlement as this is USUALLY paid directly by the insurer to the third party.
True
Liability cases
The policyholder would only be indemnified by not having to pay the settlement amount to the third party from their own pocket.
True
Liability cases
When an insurer refuses to pay a claim because of, for example, the operation of an exclusion, then the onus of proof moves to the insurer, which must prove that such an exclusion applies.
True
Onus of proof
The insurer has its own duties and responsibilities in respect of a claim. It will need to ensure that:
- all conditions and warranties have been complied with;
- cover was in force at the time of the loss (or when the claim was made, under certain policies);
- the duty of fair presentation has been complied with in respect of commercial customers/the duty to take reasonable care not to make a misrepresentation has been complied with in respect of consumer customers;
- no exceptions apply;
- the insured has taken reasonable steps to minimise the loss (mitigation);
• the insured is the same as that named in the policy (or is the person entitled to
indemnity);
- the peril (or event) is covered by the policy;
- the value of the loss is reasonable.
*ALSO The insurer has a duty to its other policyholders (and shareholders, if appropriate) to ensure that all claims payments are fair and are made on time.
All insurance policies contain a list of conditions.
Conditions can be express or implied.
True
Policy conditions
An express condition is stated in the policy,
but an implied condition is one that everyone accepts as applying to the policy, but is NOT actually stated in it.
True
Policy conditions
(Policy conditions)
Examples of these types of conditions are as follows:
Express condition:
A motorbike must be stored in a locked garage for theft cover to be valid, as stated in the policy
Implied condition:
The insured cannot use the existence of the insurance as an excuse to act recklessly or without care.
The effect of a breach of a condition varies depending upon which of the following three groups it falls into.
Conditions precedent to the contract,
Conditions subsequent to the contract,
*Conditions precedent to liability (or recovery)
Here we are going to concern ourselves with the conditions precedent to liability or recovery, as this is where the claims conditions fall.
If a condition precedent to liability or recovery is not met, insurers may avoid liability for a particular loss, but they need not repudiate the contract as a whole.
True
Conditions precedent to liability or recovery
If a later valid claim is made, the insurers must pay, provided that the insured complies with the condition in this instance.
True
Conditions precedent to liability or recovery
The Insurance: Conduct of Business Sourcebook (ICOBS) states that, unless fraud is involved, the insurer should not refuse to pay a claim from a consumer on the grounds that a condition was not met, where that condition was not connected with the circumstances of the loss.
TRUE
ICOBS = Breach of Policy conditions
Example 1.1
Henry Ramsden takes out a household policy, one of the conditions of which is that he fits window locks as a precaution against burglary. He fails to do this. Later, a poorly maintained chimney flue leads to a fire which spreads to the timber frame of the building.
Will his insurers pay for the damage despite the fact that he has breached a condition of the policy?
Because the condition that Henry breached was not connected to the circumstances of his loss, ICOBS states that it would be unreasonable for the insurer to avoid payment. Henry would have been in a more serious position though if he had been burgled, and he would be well-advised to fit those window locks.
There are also policy conditions which mean that a claim may be only partially met:
- The average clause, in the case of under-insurance for property insurances,
- The sum insured (in respect of property insurance) or limits of liability (in respect of liability insurance),
- Voluntary or compulsory excess or deductible.
The average clause, in the case of under-insurance for property insurances:
This states that the amount paid will be reduced in proportion to the amount of under-insurance.
The sum insured (in respect of property insurance) or limits of liability (in respect of liability insurance):
This forms part of the policy and limits the maximum amount recoverable. Claims for losses above this amount will not be met in full.
Question 1.2
What is an excess or deductible?
a. A term meaning the amount of indemnity paid to the insured. □
b. An amount taken from the insured’s premium to cover the first part of the claim. □
c. An amount deducted from each claim and borne by the insured. □
C
The core terms and conditions of insurance contracts, such as exclusions, typically cannot be challenged on the grounds of fairness; this default position remains unchanged under the Consumer Rights Act 2015.
Unfair or hidden terms and conditions
However, the Act does state that if a term of a contract is not transparent or prominent, it can be assessed for unfairness.
True
Consumer Rights Act 2015= Unfair or hidden terms and conditions
A term is:
• transparent, if it is expressed in plain and intelligible language; and
• prominent, if it is brought to the consumer’s attention in such a way that an average consumer would be aware of it.
True
Consumer Rights Act 2015= Unfair or hidden terms and conditions
The Act defines an average consumer as one who is ‘reasonably well informed, observant and circumspect’.
True
Consumer Rights Act 2015= Unfair or hidden terms and conditions
To avoid challenges for unfairness, insurers will need to ensure that the significant terms included in their insurance contracts are communicated transparently and prominently.
True
Consumer Rights Act 2015= Unfair or hidden terms and conditions
If a contract term is deemed unfair it will not be binding, although consumers are still within their rights to rely on a term if they wish to do so.
True
Consumer Rights Act 2015= Unfair or hidden terms and conditions
These rules cover both the consumer contract (the policy itself) and notices, such as renewal invitations and customer promotions.
True
Consumer Rights Act 2015= Unfair or hidden terms and conditions
Duties of the insured after a loss:
The duties of the insured after a loss can be divided in to two different categories.
Implied duties and Express duties
What are implied duties?
These are imposed by common law, whether or not they are actually found in the policy wording.
Implied duties examples?
- act as though they are uninsured, and take all reasonable steps to minimise the loss;
- advise the appropriate authorities as necessary in the event of loss or damage, e.g. advising the fire service in the event of a fire or advising the police in the event of a theft;
- not hinder the insurer in the claims investigation process and must assist the insurer where possible with all aspects of dealing with the loss, including helping it to recover its outlay where recovery opportunities exist.
- take all steps to prevent a loss from spreading, e.g. attempt to contain a fire; and
*Failure to comply with these conditions could render the claim invalid.
What are express duties?
These are always written into the contract, and are usually found as conditions in the policy.
A breach of these conditions (Express Duties) allows the insurer to reject a particular claim if the breach of the condition is connected to the circumstances of that claim.
True
Express Duties
What is ‘claims procedure’ or ‘action by the insured’?
There is always a condition setting out the insured’s duties in the event of an insured event occurring.
Although the condition may vary in length and detail from policy to policy, the action required by the insured will be to:
- give proof and details of the loss in writing within a certain timescale.
- involve the emergency services, if appropriate;
- notify the insurer promptly;
- take reasonable steps to prevent further damage;
Most policies state that the insured should notify their insurer of a claim ‘promptly’.
True
Notification
In the absence of an express condition to the contrary, verbal notice is sufficient, i.e. a telephone call.
True
Notification
In most instances, further information is obtained by the completion of a claim form, USUALLY issued by ??
The insurer after the initial notification has been made.
In most instances, if further information is required how will the insurer obtain them?
By completion of a claim form.
However, in some lines of business, particularly personal lines, the information is taken over the:
Telephone at point of notification.
In respect of motor or liability claims, there is USUALLY a requirement that all notifications of fatal injury inquiries, coroner’s inquests, proceedings or prosecutions are forwarded to the insurer as soon as possible. Why??
This is to enable the insurer to arrange a suitable defence, if necessary.
It is the insured’s duty to prove that a loss has occurred and to demonstrate its size.
True
Documentary Evidence
The precise nature of the proof needed will depend on the policy wording.
True
Documentary Evidence
Most insurers operate a first notification of loss process (FNOL) in order to quickly gather details about the claim.
This is USUALLY done by a telephone process whereby the customer calls a hotline to report the claim to a dedicated claims team.
In some instances, this can be done online or via a smart phone app and, as technology expands, we can expect to see more
True
FNOL
Notifications via non-traditional ways, such as:
For example, an alert from a telematics device automatically triggering the FNOL process, following a motor accident.
The telephone or internet notification is sufficient to validate the claim and for the insurer to make arrangements for adjustment or settlement without a signature on a form, for which types of claims?
For some claims, especially low value motor and property claims,
In more complex claims, such as large commercial property or liability claims, a claim form may be issued to supplement the details provided over the phone.
True
FNOL
What are the Benefits of telephone FNOL?
The benefits to the insurer
The benefits to the insurer are:
control over cost and fewer exaggerated claims…
What are the Benefits of telephone FNOL?
The benefits to the insured
The benefits to the insured are: • claims are settled more quickly; and • the claims process is simplified; • immediate access to the service; • the quality of repair and replacement work is generally of a high and consistent standard
Control over cost??
The benefits to the insurer in FNOL:
Claims are notified quicker and insurers have more opportunities to use their approved repairers and goods suppliers, with whom they will negotiate discounts;
Fewer exaggerated claims?
The benefits to the insurer in FNOL:
The insured is talking directly to the claims handler so will find it more difficult to embellish their claim and the quick notification gives them less time to ‘invent’ items
The quality of repair and replacement work is generally of a high and consistent standard?
The benefits to the insured in FNOL:
Because approved repairers or service providers are vetted and monitored.
Claim form??
If a claim form is required it will either be issued on the conclusion of the FNOL call or, in some cases, directly by the broker that sold the policy to the insured.
What’s the purpose of the claim form?
- To enable the insurer to make an assessment of the potential severity of the claim..
- To enable the insurer to assess whether there may be a potential third party claim (in respect of motor and liability insurance);
- To enable the insurer to consider whether any potential recovery rights exist,
*To establish whether the insured is entitled to indemnity under the policy,
• To provide sufficient information to permit the insurer to begin processing the claim (if appropriate).
The insurer must satisfy itself that:
– the loss (actual or potential) is covered under the terms of the policy, and
– the information given on the claim form is consistent with that given on the proposal form;
All these issues (Claim form and Insurer satisfaction) have an important impact on the claim liability and therefore the reserves.
True
What are the Contents of a claim form/notification?
The questions vary according to the class of insurance concerned, although the basic purpose is the same.
A property claim notification may require the following information, apart from the basic
personal details:
- capacity in which the insured is claiming (e.g. as owner, custodian etc.);
- date, cause, circumstances and the monetary amount of the loss or damage;
- description of the property damaged, e.g. stock, fixtures and fittings;
- situation and occupancy of the premises;
- whether any other person has an interest in the lost or damaged property; and
- whether there is any other insurance in force.
A motor accident notification may require the following information:
- details of any independent witnesses to the accident.
- details of the insured;
- the vehicle involved in the accident, and its use (i.e. domestic or business);
- the specific detail of the accident: date, time, road conditions, lighting etc.;
- sketch plan of the accident scene, showing positions of vehicle(s) before and after the accident; and
With other classes of insurance;
(for example, theft insurance),
there may be questions relating to informing ??
The police and whether steps have been taken to prevent a recurrence.
Once the claim form or notification is received,
the insurer’s claims department will carry out certain tasks, for example the insurer’s claims department will carry out certain tasks, for example checking with its underwriting records to make sure that:
- that the policy is in force; and
* that the peril that has caused the loss or damage is covered in the terms of the policy
In most cases this information is added to the claims system and only discrepancies between what is held and being advised at claim stage would be referred to??
Underwriters
Which condition has to be considered??
Good Faith
The insurer will compare the answers on the claim form with those on the proposal form. why?
This is to check that all material information was notified to the underwriters at the start of the policy, and that there has NOT been a breach of the duty of fair presentation in respect of commercial customers, or the duty to take care NOT to make a misrepresentation in respect of consumer customers.
Who next needs to check that the value of the loss is reasonable??
The claims handler
How does the claims handler check that the value of the loss is reasonable??
This is USUALLY done by looking at relevant internet sites, reference books, using the handler’s own experience and validating it with experts in the applicable field of insurance.
Which claims can be dealt with quickly and efficiently once the claim is validated and everything is in order??
Most small domestic claims
However, for larger claims, who may visit the claimant to assess the damage??
a loss adjuster
In addition to the notification information, additional evidence and/or enquiries could be made. These will be different depending on the type of claim, as the following examples show.
True
Supporting evidence
The details given at notification can often be compared with the list given to the police by the insured, for which type of insurance claim?
True
Supporting evidence=Theft Claims
Images/dashboard camera footage of the incident and satellite images of the location may be reviewed as necessary, as well as engineering reports, for which type of insurance claim?
True
Supporting evidence= Motor liability claims
Medical evidence and/or doctors’ certificates, death certificates and coroners’ inquest judgments will be examined, as applicable, for which type of insurance claim?
True
Supporting evidence= Personal injury and sickness claims
Vehicle registration documents in respect of total loss motor claims or vehicle theft would be appropriate, for which type of insurance claim?
True
Supporting evidence= Motor damage claims
Different types of experts may also be used in the investigation process, for example:
Doctors Motor engineers Restoration experts Supply chain records Solicitors Surveyors
In the investigation process, why are Doctors used?
To verify or assess the severity of injuries and assist in rehabilitation
In the investigation process, why are Motor engineers used?
To verify the damage caused and agree repair costs with the garage
In the investigation process, why are Restoration experts used?
To restore property or contents damaged by water and fire
In the investigation process, why are Supply chain records used?
OFTEN used in place of experts to help validate a loss.
In the investigation process, why are Solicitors used?
To give legal opinions, or to commence or defend legal proceedings.
In the investigation process, why are Surveyors used?
To estimate rebuilding costs
For example,
Most large household insurers will have a delegated authority agreement with their building repair suppliers, so that the?
Suppliers can validate the loss on the insurer’s behalf without the use of an expert.
Where an insurer wishes to involve other experts, it should always give an explanation ?
To the insured as to why they are involved and the extent of their role.
What is Proximate cause?
‘Proximate cause’ was defined in Pawsey v. Scottish Union and National (1907) as:
“the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”
Example 1.2
Marsden v. City & County Insurance Company (1865): A shopkeeper insured his plate glass against loss or damage arising from any cause except fire. Fire broke out at a neighbour’s shop and a mob gathered. The mob rioted and broke the plate glass….
It was held that the riot and NOT the fire was the cause of the loss. The damage was not the inevitable result of the fire.
Gabay v. Lloyd (1825):
Horses on board a ship were frightened by a storm. They broke down their stalls and kicked one another, resulting in some deaths.
It was held that death so caused was a loss by perils of the sea…
Once the insurer has established the proximate cause of the loss, it MUST check that the peril is covered by the policy.
True
Proximate cause
Perils can be classified as follows. Insured perils those named in the policy as covered
Excepted or excluded perils those named as specifically not covered
Uninsured or unnamed perils those perils not referred to in the policy and therefore not insured If an excepted or uninsured peril is the proximate cause, the insurer will not be liable.
There may be circumstances where the ultimate cause of the loss appears to be an uninsured peril..
e.g. water damage resulting from putting out a fire, but insurers will nevertheless be liable if the proximate cause was an insured peril..
The effect of an excepted peril being involved in a chain of events will depend on the wording of the exception.
True
Proximate cause
It is very IMPORTANT for the insurer to draft the exclusions in such a way that whatever is excluded is clearly mentioned in the policy.
In the case of any ambiguity in the policy wording, the benefit of doubt will always go to the insured.
This is because the insurance company drafts the policy terms, conditions and exclusions.
These are links to the claims handling process.
True….
It is very IMPORTANT for the insurer to draft the exclusions in such a way that whatever is excluded is clearly mentioned in the policy.
In the case of any ambiguity in the policy wording, the benefit of doubt will always go to the insured. Why?
This is because the insurance company drafts the policy terms, conditions and exclusions.
