1.2.2 Claims

Reporting a Claim

• Telephone

• Internet

• In-person

• Written communication

• Intermediary

Reviewing a claim

• Claim report will be reviewed by a claim examiner

• insurer may hire independent adjusters to manage claims

• the following factors are evaluated

  • Effective dates of the policy

  • Date of occurrence

  • Terms and conditions of the policy

  • Policy exclusions

  • Policy endorsements

  • Policy limits

  • Deductibles

  • Reinsurance or excess coverage

  • Reporting requirements

  • Mitigation of loss requirements

  • Extent of injury and damages

  • Extent of fault

  • Potential other parties at fault

  • Potential other sources of recovery

Claims transactions

• Establish an initial case reserve

• Claims that can be settled by a single payment may not need a case reserve value

• Insurers typically set the case reserve based on one of the following:

  1. The best estimate of the ultimate settlement value of the claim

  2. The maximum value

  3. The advice of legal counsel

• Other transactions include

  • Notification to the reinsurer if the claim is expected to exceed the insurer’s retention

  • A partial claim payment to the injured party

  • Expense payment for independent adjuster

  • Change in case reserve estimate

  • Claim payment (assumed to be final payment)

  • Take down of case reserve and closure of claim

  • Reopening of the claim and establishment of a new case reserve estimate

  • Partial payment for defense litigation

  • Final claim payment

  • Final payment for defense litigation

  • Closure of claim

Recoveries

• insurer may be able to recover some payments made on a claim

• Deductibles: applied before paying insured. For third-party coverage, insurer pay the injured party then recover the deductible from the insured

• Salvage: After settling a claim for damages item declared as a total loss, the insurer assumes ownership of the item. Amount received from restoring or selling the item is called salvage

• Subrogation: When the insurer pays for a claim, the insurer receives the right to subrogate, allowing them to seek reimbursement for damages from a third party who was at fault.

Reinsurance

• insurer may receive payments from a reinsurer for any losses that exceed the insurer’s retention.

• common types are proportional reinsurance and excess-of-loss reinsurance.

Characteristics of Insured Claims

A typical claim often exhibits the following characteristics:

1. The claim process usually spans a period of time, which could be as short as a day or several years.

2. The estimated value of a claim can fluctuate throughout its lifespan and is not definitively established until the claim is ultimately closed.

3. A claim can involve many different types of payments, like payments for defense litigation, lost wages, medical expenses, or an IA's services.

4. A claim may involve multiple dates, such as the policy effective date, the accident date, the report date, the transaction date, the reopening date, and the closing date.