IF4.6 claims settlements Flashcards
What are the four ways to settle a claim?
reinstatement
paying for repairs
replacement
paying money
When will an insurer pay cash settlements
- liability
- benefit policies
- business interruption
- small property claims
Why do insurers use cash to settle claims
easiest
Why don’t insurers do cash settlements
to deter fraud
when will insurers repair as settlements
- motor
- building damage
When will insurers use replacement as settlements
- damaged or lost goods e.g. TVs & Glass
How does repair work?
An estimate is provided to the insurer which then authorises repairs, the invoice sent directly to the insurer.
Insurers can used authorised repairers.
When is reinstatement used for settlements
Building (fire etc)
Why is reinstatement not used?
onerous obligations which can become expensive and exceed the sum insured.
Why two settlements only apply if written into the policy?
replacement & reinstatement
Which claims settlement method is chosen should be…
explained to the insured to comply with the FCA fair treatment to customers.
When will the insurer pay someone other than an insured as a claims settlement
- Hire purchase companies
- Mortgage Companies
- Private Medical Services
define a surge event
an insured event that causes higher volume of claims than normal, placing greater demand on the insurers claims resource
Examples of surge events
- volcanic eruptions
- Heatwaves/Cold spells
- Riots
(Usually property claims)
What to insurers have to do to prepare for surge events
- claims notification processes need to accommodate a large number of calls
- prediction: looking at the weather to prepare for the event
- proactively contact customer you think may be effected
- smaller claims made be approved more simply to reduce workload
In surge events its important for insurers to …
prioritise customer needs and manage expectations for smaller claims
Global Reserving
the responsibility of the actuaries to set aside funds for the company as a whole.
Global Reserving Process: Checking the Integrity of the Data
Ensure that individual case estimates are up to date and that no processing backlogs exist.
Global Reserving: Collating Historical Data
collate data into similar groups with each group having sufficient data to maintain statistical credibility.
Global Reserving: Projection of claims
claims need to be projected to establish the likely ultimate gross pay-out
Loss Development Factor Method Method
- Setting the data in the form of a table showing the development of premium, claims and incurred claims at each point in time.
- Analysing the trend
- Calculating the claims reserve.
Triangulation
analysing data and comparing it by accident, underwriting, calendar or policy year.
How is the claims reserve for each accident year calculated?
multiplying the cumulative claims to date for that year by the development factors for the number of years that remain undeveloped.
Individual Case Reserves
Set by the claims handler to determine funds required for:
- damage to property
- damages for personal injury
- third party special damages
- legal costs
when claims are made (taken out of the global reserve)
Who estimates individual case reserves
claims handlers (can be helped by loss adjustors, surveyors & engineers)
Factor/Flag reserving
a factor is added to each claim as it comes rather than the whole case reserve
When is factor/flag reserving used?
Motor & small personal injury
Why would a claim be invalid
- cover never in force
- breach of material warranty/ policy condition
- fraud
- misrep/ non-disclosure
Why may a claim only be partially met, it may only be partially met
- Sum insured/ limit of liability, any the loss is greater than this amount it will not be recoverable
- Average clause
- compulsory excess or deductible
- ex gratia payment (gesture of good will even when there is no obligation to pay).
Subrogation rights
the insurers pursue right of action available to the insured to recover any payments they have made
ex gratia payments
gestures of goodwill where insurers pay part of a claim even when not valid to maintain relationships.
When can insurers pursue subrogation rights
Once the claim is made (before payment to the insured) but they cannot actually recover the funds until the payment has been made.
Average formula
sum insured / actual sum insured x 100
where actual sum insured is what it should’ve been
Define Salvage
the damaged article that has been subject of a claim
Who keeps the value of the salvage
the insurer (they can sell it one) unless the insured wants to keep it (according to the FOS they can) then a suitable reduction is made from the settlement.
(the insurer can only pursue the amount the paid out via subrogation)
Bi-lateral Agreement
an agreement with others who operate in the same market. They can share resources to help each other out.
What are the benefits of market agreements
- reduce claims costs
- speed up repair and claims settlement
- promote good insurer relations
ABI personal effects contribution agreement purpose
- avoid adverse publicity and criticism of the insurance industry generated by referring policyholders to other insurers for payment of part or all of their claim.
- avoid costly and time consuming handling
- set out rules for contribution
Motor Insurance Bureau
-Compensates the victims of uninsured or untraced motorists
- acts as a guarantor of the existence of insurance for UK vehicles overseas and takes responsibility for handling claims.
How is the MIB funded
insurers pay a levy proportionate to the size of their motoring department.
When can you submit an untraced drivers claim to the MIB
3 years from the date of the accident for injury
6 years for property damage
Excess for property damage in the untraced drivers agreement by the MIB
£400
Policies subject to average
In the case of underinsurance policies are subject to an average clause where the insured must act as their own insurer for the difference between the actual value and the insured value.
sum insured / actual value of goods x loss
Define excess
the first amount of each and every claim which is not covered by the policy
Compulsory excess
an excess applied by the insurer as a term of the policy, representing the fact a higher risk might apply
Voluntary excess
policy holder requests excess in return for discounted premium.
deductible
large excess
define Franchise
a threshold used to decide if a claim is to be paid. Once a claim exceeds the level for a franchise the claim is paid in full.
What are the 3 obligations a insurer has when a motor policy is taken out
- follow the contractual terms of the policy
- Statutory obligations (basic level of insurance)
- Motor Insurance Bureau
Article 75
An agreement between the MIB and insurers/syndicates making insurers unable to escape liability for third party accidents
Uninsured Drivers Agreement
The MIB will compensate victims in motor accidents where the at fault motorist has no motor insurance policy in force. Limit of 1.2mil for third party property damage.
Limitations on the uninsured drivers agreement
- subrogation rights do not apply (i.e. when the insured has comprehensive insurance)
- costs of repairing the vehicle where the vehicle itself was uninsured are not covered
- passenger claims are not considered if they new the vehicle was driven without insurance.
Who is responsible for global reserving?
actuaries
Who is responsible for claims reserving?
claims handlers
What type of businesses is the ABI Personal Effects Contribution Agreement for?
household, all risks, motor, travel & other personal insurances
What does the ABI personal Effects Contribution Agreement set out?
Rules for loss of personal effects covered by two or more policies:
- Motor -no contribution
- Specified items - Usually no contribution
- All other circumstances require contribution unless it is less than £200.
When does contribution not occur (ABI personal effects contribution agreement)
Motor policies, specifically insured policies & claims less than £200.
Untraced Driver Agreement
Claims can be submitted to the MIB Who investigate the hit and run and decide whether or not to make payment.
(person make make an appeal to an independent arbitrator)
Under the untraced driver agreement when will the MIB be liable to pay compensation?
- claims for death or injury
- claims for property damage where the MIB has paid a significant personal injury claim aswell.
