Week 5 Flashcards
For a customer, what is insurance?
It is an intangible (not physical) promise finically
What are the three ratios and what do they all stand for?
Claims ratio (premiums in to claims out, £1000 in premiums but £600 payout is a 60% claim ratio), expenses ratio (the cost of operating expenses like salaries, rent etc…) and combined ratio (The overall profitability which is based on combining claims and expense ratio)
What does >100% and <100% mean?
if there’s a >100% that means there has been a loss, more money paid out in claims than premiums
<100% this means there has been a profit on the underwriting
Whats a claims ratio, expense ratio and combined ratio?
A claims ratio is also known as a loss ratio, expense ratio is the premiums you spend as operating cost and combined ratio is your overall profitability.
What does indemnity mean in insurance?
In basic putting you back to your pre financial loss
What might conflict with insurers?
Satisfying policy holders, having indemnity at the lowest cost you can and avoiding fraud
What are the main steps to a claim?
Think NAMS
Notification (claims handling), acceptance, management and quantification, settlement and closure (claims reserving) .
In the claims process, claims handling is also known as?
Notification
In the claims process, claims reserving is also known as?
Settlement and closure
What is claims management?
The process in which companies assess and fulfil policy holders claims such as direct lines claims philosophy to focus on simple product that lead to simple claims. it is also the complete operational criteria of claims, how competent they are as well.
What might be a difficulty when considering claim size?
Typically the smaller the claim the more simple, the more expensive the claim the more amount of expert will have to be involved.
What is a claims reserve?
Money set aside by insurer to cover future expected losses
Why might some insurance costs be more expensive than other?
Due to frequency and severity
What are the two types of timing insurance?
Immediate (car crash) and deferred (medical)
What can claims management strongly influence?
Claims management influences performance.
What does >78% mean?
Its a loss ratio/ claim ratio, it means there was a high loss
What does <25% mean?
A low loss ratio
What is conflict resolution?
conflict resolution is how issues between insurance and policy holder is dealt. For example they may chose negations, an internal investigation, litigation/ legal route
What is claims leakage and what are the steps to avoiding it?
When the amount of money goes above the cost of the claim due to inefficiency on behalf of the insurance operation. Its sorted by the NAMS, Notification, acceptance, management and quantification, settlement and closure.
Dylan creates an insurance company, he talks about his insurance philosophy and sets out criteria on claims and how to operate them efficiently to his team, what term is used to describe what and who he may be talking to?
His claims management team.
Who will investigate complex claims on behalf of the insurance?
Loss adjustors
Whats the relationship between how much insurance company pays for risk management and level of risk?
The higher the cost of risk management, the lower the cost of the level of risk
Suggest 3 ways indemnity could be provided?
Replacement, a payment to value or repair
What are the 3 different stage of insurance reporting?
Claims reported and settled,
Reported but not settled,
incurred/ Happened but not yet reported
Insurance what does RBNS and IBNR stand for?
RBNS (Reported but not settled)
IBNR (Incurred but not reported)
Between RBNS and IBNR at which point does claims open?
RBNS, reported but not settled
When talking about claims made vs claims occurring, what might an example of claims occurring be?
Claims occurring could be like asbestos or chemical poisoning from work over decades or working in shipyards asbestos related.
Claims leakage is a problem for insurance, where does it cost them?
Claims leakage costs insurance operational cost.
What would you talk about in what might conflict between insurance companies? (3)
Seeing policyholder and regulators expectations
minimising fraud
trying to price premiums at a fair price and reducing their risk
What might you talk about in claims management? (5)
Claims management is the insurance ability to see a policyholders claim first made to the settlement and payout of the claim and how effective or how ineffective they may be.
Small claims can be straight forward as they may have an efficient proximate cause and often require less of an expertise.
Large claims can cause a problem for many reasons such as increased chances of claims leakage where the cost becomes more expensive to solve the claim due to inefficicens on the insurances side, there could also be a concurrent causation in which there are multiple primary causes for the possible event and there often requires a lot more expertise involved.
To battle both of these, loss adjustors made be involved, they will take into account everything such as policies, witnesses and view documentation they will then advise insurance on what to do.
Insurance companies can provide indemnity here, they could do this in three way, they could repair what is broken, completely replace what is broken or pay to the value of what is broken.
What might you talk about in claims reserving?
Claims reserving is insurance companies putting money aside for possible future losses, this could be where the event is anticipated or is totally unexpected.
The problem is the event can be a lot more severe than planned for, could come quicker than planned for or does not happen at all.
There is low frequency high severity (less predictable for insurance, they possibly cant use LLN or relative frequency of occurrence here) and high frequency low severity.
The stage of the claims are
IBNR (Incurred but not reported)
RBNS (Reported but not settled)
CRAS (Claims reported and settled)
Claims made is when occurrence happens during the time of the risk
claims occurrence is when the risk can be at any point during a period of coverage such as asbestos exposure where risk still lays
Insurance may also use claim reserve for catastrophic events, emerging risks and risks which are more difficult to evaluate.
What might you talk about in insurance fraud?
Hard fraud where it was pre-planned and soft fraud where the truth is often exaggerated.
Fraud triangle which is pressure/ incentive (motivational to push fraud usually financially driven) overcome by in person interview
opportunity (the attempt to commit fraud without being caught) overcome by having trained fraud handlers investigations
rationalisation (used to overcome guilt or views insurers as evil) and overcome by communicating the consequences of fraud
