IF4.7 management of expenses Flashcards
what are the 3 main roles of a claims manager
- strategy
- costing
-staffing
approach to claims management
- corporate claims philosophy
- clear claims procedures (inc. reserving practises)
- quality management system
- efficient use of IT
- outsourcing where appropriate
Who is responsible for strategy?
worked out at senior management level but the claims manager is responsible for its day-to-day implementation
Key tasks of a claims manager in respect to strategy
- ensure strategic direction is followed (set business plans to ensure everything goes smoothly)
- maintain sufficiently senior status so they can complete the role
- maintain suitable links with other departments including underwriters actuaries and claims support function
- have suitable computer systems that produce effective, accurate reports
- maintain best practise
- be aware of current underwriting practise and reserving methodology
- implement ESG where possible
Two aspects of the responsibilities of a claims manager when it comes to cost
- Cost of running the claims department
e.g. salaries, outsourcing costs & IT costs - Cost of Claims
e.g. pay outs, subrogated recovery & recovery from reinsurance
Two aspects of the responsibilities of claims managers when it comes to Staffing
- ensure can recruit, train, motivate and retain intelligent and competent staff.
- effectively manage and motivate staff (plan tasks/responsibilities, provide leadership, monitor progress & co-ordinate training)
Define Leakage
the amount by which the actual settlement exceeds the amount that would have been required to make an acceptable settlement under the policy
What are the two main decisions when handling a claim?
- is the claim valid?
- Size of the payment
Ex Gratia Payment
A payment of goodwill by the insurer where a claim is invalid but they still make a payment
What situations are ex gratia payments made?
- where an exclusion is borderline
- where hardship would be created
- to preserve good business relationships
How is overpayment identified?
detailed review of the handling of the claim through its various stages:
- what the cause included in the policy?
- was the date of loss within in the policy?
- was the claim notified in the time limit?
- is there sufficient proof of the extent of the loss?
- Has excess been applied?
- Does underinsurance apply?
- have all recoveries been made?
- has subrogation taken place?
- has contribution been taken into account?
- all fees paid? are they reasonable?
- has depreciation been taken into account?
- is it a repeat claim?
- has the damage sit been inspected?
- was the settlement appropriate?
Define Soft Leakage
subjective and difficult to quantify
e.g. failure to negotiate properly
Define Hard leakage
easy to identify
e.g. failure to deduct the excess
Overpayment (Leakage) =
What was actually paid - what should have been paid
Prevention of Leakage
- senior management focus
- employee skills
- Supervisions of staff
- Quality management
- IT checks
- Culture
How can senior management focus help prevent leakage
Senior management can emphasise reducing claims payments and following best practise.
How can employee skills prevent leakage?
Training in the following areas:
- legal training
- awareness of market practises
- knowledge and best practise
Helps reduce mistakes and reduce leakage.
What skills do supervisors need?
the same skills as the rest of the employees plus:
- management training
- presentation training
How can quality management prevent leakage?
Adequate checks should be in place to prevent hard leakage (and as many aspects of soft leakage as possible. E.g. via regular audit
How can IT prevent leakage?
A computer systems can stop against simple hard leakage e.g. warning the user that excess has not been deducted.
How does culture prevent leakage?
If the culture of accuracy and open challenge flourishes staff will be more attuned in ensuring accuracy & validity, reducing errors in their actions.
Causes of leakage
- inexperienced staff
- fraud
- mistakes
Solvency II
An insurance company must be trading solvently (must have enough funds to pay claims)
Solvency margin
the funds set aside for a company to remain solvent
Fixed portfolio
highest regulation. All 3 pillars.
Flexible portfolio
reduced regulation. pillars 2 and 3 only.
Why is it necessary to monitor a company’s financial performance
- satisfy the regulators
- maintain management control
- purposes of their annual reports and accounts
Financial conduct Authority (FCA) is responsible for:
responsible for:
- ensuring markets operate with integrity
- promotes effective competition
- requiring firms to put well-being of customers first
FCAs three pillars
- Firm systematic frame work
- Event-driven work
- Issues and Products
What decides the portfolio of a company
the size of the company, the risk it carries & customer results etc
Companies Act 1985
companies require profit and loss accounts & balance sheets
profit and loss accounts
shows the transactions carried out by a company during the financial year
balance sheet
the financial position at the end of the year: shows assets and liability
Premium reserves examples
outstanding claims, incurred but not reported
Management control
- plan
- monitor
- control
Firm Systematic Framework - FCA conduct of business Pillar 1
preventative work through structured assessment of firms
Event-driven work - FCA conduct of business Pillar 2
dealing with problems that have emerged or happened and securing them with customer redress or alternative remedial work
issues and Products - FCA conduct of business Pillar 3
Campaigns in relation to market sectors or products which put or pay put customers at risk
Financial Services Act 2012
Enables the financial policy committee (FPC) to give directions to the regulators for the purpose of protecting and enhancing financial stability.
Focus of the FCA
clients assets are protected and that relevant markets function well.
What determines the level of supervision from the FCA?
size, market presence & customer footprint
How are firms supervised by the FCA?
market-based thematic work, programmes of communication, engagement & education aligned with the key risks identified for the sector.
