Study 2: The Claims Environment - Summary Flashcards
Office of the Superintendent of Financial Institutions (OSFI)
- Primary regulator of federally chartered Canadian and foreign property and casualty (P&C) insurance companies.
- Also responsible for overseeing financial institutions.
- Purpose of regulatory reserve requirements is to ensure the solvency of insurance companies.
Property and Casualty Insurance Compensation Corporation (PACICC)
- A special program, approved by government regulators, to protect policyholders from the financial collapse of an insurer.
- Responds to claims of policyholders under most policies issued by P&C insurance companies when an insurer becomes insolvent.
Privacy Rights
- Personal Information Protection and Electronic Documents Act (PIPEDA) recognizes the privacy rights of individuals
- IBC has developed a consent wording for when insurer needs to use personal info
- When financial information, employment records, or medical records are required by a loss adjuster, the claimant must authorize release
Unique departments in an insurance company
- Underwriting department: invests the capital of an insurer’s shareholders by accepting or rejecting applications for insurance in keeping with an insurer’s underwriting strategy
- Claims department: administers the loss adjustment process when a claim is presented, regulating whether and how funds are distributed
Claims Department
- Insurer pays out on losses it has contracted to cover in a way that maintains a balance between fiscal responsibility and customer service.
- Keeps other departments informed about relevant risk information it uncovers during investigations
- Loss adjusters must be ready to work cooperatively with underwriters (ex. if information is uncovered during a claims investgation that may be material to the risk, could recommend cancellation)
Loss Reserves
- A loss reserve approximates the impending loss payment for which funds must be set aside. Assists with financial planning of insurer.
- To ensure reserves remain reliable, loss adjusters update them during periodic file reviews and when new information arises during the adjudication of a claim.
Two main methods to set up reserves for claims
- Average cost reserving: used when large numbers of claims in a particular line of business produce reliable statistics (ex. windshield claims tend to be highly predictable)
- Individual reserving: used when only the loss adjuster can effectively estimate a reserve, case by case basis. Traditional method of reserving claims.
Agreements through IBC to reduce or eliminate delays and disputes in claims settlements
Through Insurance Bureau of Canada (IBC), member and non-member companies can be signatories to the IBC Claims Agreements. These agreements are voluntary, and signatories to the agreements have committed themselves to resolving certain claims in certain ways. In this way, they can eliminate or reduce delays and disputes in the settlement of claims and serve consumers more efficiently.
Agreement Respecting Standardization of Claim Forms and Practices, and Guidelines for the Settlement of Claims
- Provides for a 60-day reporting period from independent adjusters on interim reports
- Waives the requirement for proof of loss on first-party automobile claims, as long as repairs have been carried out. (In subrogation cases, claims must be supported with documentation.)
- For property claims, waives the requirement for proof of loss for claims not exceeding $5,000, except in cases of theft, mysterious disappearance, or subrogation. (For exceptions, decisions are left to the insurers involved.)
- Various rules govern how to interpret subrogation rights for automobile accidents.
The Intercompany Settlement Chart applies to vehicle damage that does not exceed a specified dollar amount. The chart does not apply in Ontario, Quebec, New Brunswick, Nova Scotia, PEI, or Newfoundland, where fault determination rules are regulated under provincial law.
Agreement of Guiding Principles Between Primary and Excess Liability Insurers Respecting Claims
This agreement is used to resolve claims when liability policies overlap in coverage.
Canadian Inter-Company Arbitration Agreement
- Arbitration mechanism for settling disputes between insurers efficiently and cost effectively
- Provides the mechanism for insurers to arbitrate their disputes over qualified physical damage subrogation claims among themselves.
Supplier Partnerships
- Some insurance companies make agreements with independent businesses to supply services or products to insureds (ex. preferred auto body shops).
- Help protect insurance companies and insureds against subpar workmanship that may be performed by independent companies.
- Also help control claims costs, since insurers work with the supplier to negotiate reduced rates on services or products.
Fraud and the Loss Adjuster
- Insurance covers fortuitous events (i.e. occurs by chance, acccidental). If a loss is intended or created by the insured, they cannot recover their loss.
- Policyholders may invent or exaggerate claims. Suppliers of services may inflate invoices or produce bogus invoices.
Examples of how fraud may occur
- The policy is issued for property that does not exist or that is owned by someone other than the insured.
- The policyholder intentionally misrepresents how insured property is used to obtain a lower premium.
- The claimant stages an accident to submit a fraudulent injury claim.
- The policyholder stages a burglary.
- The policyholder reports a vehicle theft when no theft has occurred.
- The policyholder significantly inflates a claim or commits arson in order to present a property claim.
Fraud prevention
- Special Investigation Units (SIUs): deal with claims where fraud is suspected or where other factors have been identified that require special investigation
- Insurance Bureau of Canada (IBC) Investigative Services works to detect and prevent insurance-related crime, primarily in the areas of organized automobile theft and staged automobile accidents
