IF4.3 Claims Considerations Flashcards
Role of a claims handler
- deal with all submitted claims quickly and fairly
- settle claims with the minimum wastage/ avoid overpayment
- estimate accurately the final cost of outstanding claims
- distinguish between genuine and fraudulent claims
Why is customer service so important?
- Consumer awareness (consumers are more aware of their increased rights & can share bad experiences online, damaging insurers reputations)
- Expectation of service (customers are expecting value-added services)
- Competition (new insurers may use new technology and techniques providing better customer experience).
Service standards will cover roughly…
nature, speed and economic efficiency of the claims service at each stage
Aim of service standards
to balance the need to treat the customer fairly, efficiently and sympathetically with the need to only pay claims that are valid.
Benefits of quality customer service
- encourages customer loyalty (cheaper to retain customers)
- attracts new customers
- attracts and keeps high-quality employees
- marks the company out from its competitors
- improves a companies profitability
- increases productivity
- improves the working environment
The first party
the person or company insured by the insurance company
The second party
the insurance company insuring the first party
The third party
anyone lese involved in a loss event
The third party does not have a contractual relationship with the insurer which has the following consequences…
- The third party must legally, pursue their claim against the insured not the insurer (the claim is normally presented to the insurer from the insured)
- There may be hostility involved so the third parties expectation may be greater.
- There is no loyalty from the third party so may be more prone to exaggerating the claim
- Insurers usually respond slower to third party claims
- a well-handled third party claim acts as good marketing
- A third party claim will not be fully compensated in the event of contributory negligence
- third parties are not liable for any excess or deductibles
- The recovery of legal costs is more common (and the insurer will have to pay their legal fees)
Are liability claims more or less complex than property claims
more
Reserving
the process that a company carries out in order to assess the level of funds that are required to meet current and future claims liabilities.
What is claims reserving used to assess
- overall financial performance of the company
- relative profitability of difference classes in the business
- adequacy of premium rates
Estimating
insurers place an estimate on each individual claim file, usually split into categories to reflect the sections of the policy being claimed against
in order to establish the size of a reserve …
- a value is placed on each claim
- an allowance is then made for direct claims expenses
Global claims reserve
a reserve covering the whole book of a business
objective of claims reserving
estimate the future cost of claims
Why are reserves necessary?
an insurance company needs to set up reserves for unsettled and unnotified liabilities (due to delays)
Outstanding claims reserve
contains all the reserves from all the individual reserves that have been incurred and reported to the insurer.
Incurred but not reported (IBNR) reserve
The reserve for losses that have incurred by the insured but not yet reported
Incurred but not enough reported (IBNER) reserve
reserve that covers shortfall in provisions for outstanding claims reserves.
Equalisation reserves
required by law and smooth fluctuations in loss ratios
catstrophe reserves
reserves to cover a large number of related individual losses arising from one event
Unearned premium reserve
reserve for the element of the premium for which insurance cover has not yet been provided.
unexpired risk reserve
a reserve only needed where a loss is foreseen in relation to the unearned premium reserve.
Reserve for claims handling expenses
A reserve to cover the anticipated future costs of settling claims
re-opened claims reserves
a reserve for when the claim is closed but then the underlying circumstances of the claimant deteriorate (common in personal injury)
What are the 4 types of insurance fraud
- inventing a loss
- exaggerating a number during an otherwise honest report
- deliberately creating an insured event
- exaggerating the effects of an insured event
Insurance Fraud Bureau (IFB)
a central hub for sharing insurance fraud data and intelligence using its position at the heart of the industry and access to data to detect and disrupt organised fraud networks.
Insurance fraud enforcement department (IFED)
Part of the city of london police, they are a specialist unit dedicated to tackling insurance frau. funded by a partnership with insurers through the ABI and Lloyds.
Insurance fraud register
A database of known insurance fraudsters.
IFB Insurance Fraud Intelligence Hub (IFiHUB)
An IFB initiative, developing an industry wide counter fraud sharing platform, where intelligence about fraudsters can be shared in real time.
Motor Insurance Anti-Fraud and Theft Register (MIAFTR 2)
details of all total loss and theft claims.
Claims and Underwriting exchange (CUE)
contains information on personal lines & personal injury claims from the previous 3 years.
Subscribing member submit their claims data and check the true claims history of those individuals - aiming to eliminate multiple claims on parallel policies.
Art Loss register
A register of all stolen art, with aims to:
-increase the recovery rate of stolen art and antiques
- deter theft by making resale of stolen art more difficult
Common indicators of fraud
- claims made soon after a policy is taken out
- frequent change of insurer
- uncharacteristic increase in the level of cover
- financial difficulties
- prevarication by the insured (avoiding telling the truth)
- excessive pressure to settle
- inconsistencies in the story
- lack of co-operation
- poor or missing documentation or sometime perfect documentation
Completing claims forms over the phone, settlement by replacement instead of cash & use of cognitive behaviour tools to listen to inconsistencies in voice will
help identify and combat fraud
How does fraud impact people
- The insurer: costs a lot, increasing premium costs making them less competitive.
- policyholders: increases premiums
- Fraudulent claimants: if they get away with it they may be tempted to do it again.
Fraudulent Act
behaviour that makes a claim fraudulent
Insurance Act 2012 allows an insurer to treat an insurance contract as terminated from time of the fraudulent act and after termination
- the insurer will remain liable for any prior legitimate claims
- the fraudulent claim and all subsequent claims will be invalid
- the insurer may recover any payments in respect to fraudulent claims
- the insurer is entitled to retain any premium paid
fraudulent claim
someone who presents a completely fraudulent claim or someone who suffered a loss but uses a fraudulent device to increase the prospect of payment
Criminal Justice and Courts act 2015 (CJCA)
when part of a personal injury (PI) claim is found to be fundamentally dishonest, the whole claim will be struck out.
prudential regulation authority (PRA)
part of the bank of England responsible for the prudential supervision of systemically important firms operating in the industry.
Financial Conduct Authority (FCA)
responsible for the prudential regulation of smaller firms as well as the business conduct of all firms.
Focusses on generic, industry-wide issues rather than firm specific issues.
Insurance: Conduct of business Sourcebook (ICOBS)
standards relating of the handling of claims ensuring customers are treated fairly.
According to ICOBS even if insurers outsource claims handling…
they are still responsible for claims handling.
To ensure claims are treated fairly ICOBS recommends:
- claims are handled fairly and settled promptly
- customers are provided with appropriate information on the claims handling process
- ensures conflicts of interest are disclosed and managed
- must not turn down claims unfairly
According to ICOBS it is unreasonable to refuse claims for
- misreprensentation which was not qualifying
- a breach of warranty unless the circumstances of the claims are connected with the breach.
Duty of consumers under CIDRA
take reasonable care not to make a misrepresentation to insurers before a contract of insurance is entered into.
Qualifying misrepresentations
- deliberate & reckless
- careless
Contributory negligence
when the blame is shared
Who must prove that a misrepresentation is qualifying
the insurer
If a misrep is deliberate or reckless
insurer may avoid the contract
if a misrep was careless and the insurer would’ve still entered the contract (but on different terms)
treat the contract as if those terms had applied
if a misrep was careless and the insurer would’ve still entered the contract (but charged a higher premium)
the claim amount will be reduced proportionately
if a misrep was careless and the insurer wouldn’t of entered the contract
avoid the policy but must return the premium
Non-consumer duty to make a fair presentation
- disclose every material circumstance
OR - provide the insurer with sufficient information then an insurer can make further enquiries.
(Non-consumer) If a non-disclosure was deliberate or reckless
insurers can avoid the policy
If a non-disclosure was innocent or negligent (non-consumer)
remedies would be proportionate to reflect what the insurer would’ve done if they had known of the undisclosed information before entering into the contract.
Under the insurance act a breach of warranty
suspends the insurers liability under the contract until such breach is remedied.
claims expenses
fees for loss adjustor (claims over 5k)
Basis of contract clauses
converted pre-contractual representations in a proposal form into warranties
motor Insurance database (MID)
contains details of all registered vehicles and the relating insurance details.
Financial Ombudsman Service (FOS) membership
compulsory for insurers
The Financial Ombudsman Service is for…
consumers only
Eligible complainants for FOS
- consumer
- microenterprise (turn over no more than 2 million)
- charities (annual income no more 6.5mil)
- trustees (net assets less than 5mil)
- small businesses (annual turover less than 6.5mil and less than 50 employees)
- guarntors
Maximum award for complainants referred to the FOS after apr 2022 about acts after apr 2019
375 000
The complainant can accept or reject a decision from the FOS. If the reject they…
they are free to pursue the matter in court.
Who is the FOS decision binding to?
the insurer but not the insured
Why do insurers prefer arbitration?
allows disputes to be settled in private by someone who has expertise in the subject of the dispute.
Arbitration
is a customer doesn’t like the settlement amount they can dispute the number without a court case.
What are the two types of Alternative Dispute resolutions (ADRs)
Adjudicative Options & Non-adjudicative options
Konstantinos Agapitos v. Ian Charles Agnew,
manifest Shipping Co. Ltd v. Uni-Polaris Shipping on fraud,
Versloot dredging BV v. HDI-Gerling Industrie Versicherung AG and others
If a fraudulent claim, then not only will that fail but all subsequent claims (even if they are legitimate) will fail.
Adjudicative Options: Arbitration
An independent person allows each person to present a case and respond to the other party.
Adjudicative Options: Adjudication
Covers disputes between policyholders and sub-contractors (required by a statute over all construction contracts)
Determination made by an independent part within 28 days.
Adjudicative Options: Expert Determination
for purely technical disputes an expert will make a decision that is legally binding.
Non-Adjudicative Options: Negotiation
the starting point for any resolution, just talking to the other party.
Non-Adjudicative Options: Joint settlement
parties come together to discuss options to resolve the case.
Insurers can terminate cover from when (fraud)…
the fraudulent ACT (not the claim)
Non-Adjudicative Options: Mediation
a facilitated decision where the dispute is heard by a mediator who seeks common ground between the two parties.
Non-Adjudicative Options: Early neutral evaluation
provides an early view on the case, voluntary and not legally binding
Non-Adjudicative Options: Conciliation
Compulsory for employment tribunals (common in employment & industrial disputes).
provided by agencies.
what are adjudicative options for third party disputes?
parties determine the choice of process but lose control of the outcomes (determination rests with an independent neutral person)
What are no-adjudicative options for third party dispute?
the parties retain control of the process and the outcome.
Information an individual should know
- insured own knowledge
- knowledge of the person who is responsible for the insurance
Information an organisation should know
- relevant knowledge of anyone who is part of the insureds senior management
- relevant knowledge of anyone responsible for the companies insurance
Who is responsible for the regulation fair treatment of customers
the FCA
Enterprise act 2016
- it is an implied term that the sum must be paid in a reasonable time (includes time to investigate and assess the claim, depends on size of the claim, circumstances, compliance with regulation & factors outside of control)
- a breach of the term results in the insurer paying additional damage payments and interest.
Six customer outcomes
- consumers can be confident the company has fair treatment of customers central to their organisation
- products are designed to meet the needs of identified consumer groups and are targeted accordingly
- consumers are provided with clear info and are kept appropriately informed
- any advice is suitable and takes account of their circumstances
- products perform as consumers are led to expect
- consumers do not face unreasonable post sales barriers.
For firms to achieve good outcomes for vulnerable customers they should..
- understand the needs of their target market/customer base
- ensure their staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
-respond to customer needs throughout the product design & flexible customer service - monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability.
Monetary award for FOS for complaints after apr 2022 about acts before apr 2019
170 000
FCA consumer duty regulations
- firms must deliver good outcomes for retail customers
- consider the needs of customers especially those with vulnerabilities
- There is an increased requirement for firms to understand and evidence whether consumer outcomes are being met
FOS directions award
tells the firm what actions it needs to take e.g.
- pay an insurance claim (previously rejected)
- calculate and pay redress according to an approach set by a formula
- apologise personally
How is FOS funded?
- annual levy
- case fee over a certain amount of cases
Four key elements of the firm-consumer relationship according to the FCA
- products and services
- price and value
- consumer understanding
- consumer support
Arbitration is usually…
a clause or condition in the contract
What’s the risk of taking a case to court
public, risk your reputation
arbitrators have the same powers as..
the courts
Financial Vulnerability taskforce
promotes greater understanding, encourages appropriate behaviours and establishes good practise in respect of consumer vulnerability.
when handling claims a company should
- handles claims promptly and fairly
- provides reasonable guidance to help a policyholder make a claim
- does not unreasonably reject a claim
- settles claims promptly
Who is involved in the reserving process?
Underwriters, Actuaries & Claims managers
Objectives of the Insurance fraud Bureau
- help insurers identify fraud and avoid the financial consequences
- support police, regulators and other law enforcement agencies in finding fraudsters and bring them to justice.
Fraud Cheatline
A free and confidential tool to report suspected fraud for the public.
Who Administers the Insurance Fraud Register
The Insurance fraud Bureau (for ABI members)
Who set up the Claims and underwriting exchange?
The Motor Insurance Bureau
What are the time periods a complaint has to be forwarded to the FOS in?
- 6 months (from the firms final letter)
- six years are the event complained about
- 3 years after the complainant knew they should complain.
Another word for Arbitration
tribunal
Adjudicative vs non-adjudicative options
Adjudicative - parties loose control
Non-Adjudicative - parties still in control of process & outcome of resolution
Fair Treatment of Customer Outcome 1
- consumers can be confident the company has fair treatment of customers central to their organisation
Fair Treatment of Customer Outcome 2
- products are designed to meet the needs of identified consumer groups and are targeted accordingly
Fair Treatment of Customer Outcome 3
- consumers are provided with clear info and are kept appropriately informed
Fair Treatment of Customer Outcome 4
- any advice is suitable and takes account of their circumstances
Fair Treatment of Customer Outcome 5
- products perform as consumers are led to expect
Fair Treatment of Customer Outcome 6
- consumers do not face unreasonable post sales barriers.
Delays in insurance
- delays between the incident occurring and the notification of the claim
- delays between the notification of the claim and the settlement of that claim
