Chapter 3: Claims Considerations and Administration - Insurance Claims Handling (non UK)

Who plays an important role in shaping the opinion a policyholder has of their insurer?

The claims department

What is the claims department a vital component of ensuring?

Proper management of pooled funds

How is the claims department a vital component in ensuring the proper management of pooled funds?

They act as the trustee of the policyholders funds

Why is it vital for claims departments to be staffed by competent and professional claims handlers?

So they can be efficient

What are the roles of a claims handler?

• Deal with all submitted claims quickly and fairly

• Settle claims with the minimum of wastage or avoidable overpayment

• Estimate accurately the final cost of outstanding claims

• Distinguish between genuine and fraudulent claims

What is it called when there is wastage or avoidable overpayment of a claim?

Leakage

What has become a dominant issue for claims departments?

Customer service

What are the reasons that customer service has become a dominant issue for claims departments?

• Consumer awareness

• Expectation of service

• Competition

Why has consumer awareness become a dominant issue for claims departments?

• Consumers are more aware of their increased rights and insurers have had to react accordingly

• Consumers also have a much stronger voice with the rise of social media platforms and are becoming more vocal about perceived poor service

• Consumers are more likely to share a bad experience online, which could have damaging consequences for an insurer's reputation

Why has expectations of service become a dominant issue for claims departments?

• Customers are ever-increasingly expecting value-added services, driven largely by insurers' marketing campaigns

• Service can be used to sell products over price, although most consumers will opt for price in the first instance

Why has competition become a dominant issue for claims departments?

• Insurers cannot expect to compete with other insurers if they are not satisfying their existing customers' needs

• There are new disruptors entering the market which, through the application of new technology and techniques, may be able to provide a better customer service experiences and have a greater ability to provide the service consumers expect

What has the increasing consumer demands of claims departments lead to?

• Much improved customer service

• An increase in the skills and professionalism of the claims handlers providing it

How can the skill sets of Claims Personnel working in Claims Departments vary?

• Attention to detail

• Risk assessment

• Ability to pick up the deviation

• Empathy while handling claims

What would a claims department's philosophy mean it will have to embrace?

It's service standards

What is an example of a claims department's service standards?

How it intends to deal with the claims presented to it by its customers

What will each insurer's claims department have a different approach to?

Key claims issues

What will the service standards for a claims department usually have a section setting out a broad approach to?

• The quality of service aimed for

• How valid claims will be handled

What issues are the service standards of a claims department developed on to cover?

• The nature of the claims service at each stage of the claims process

• The speed of the claims service

• The economic efficiency of the claims service

What should the service standards of a claims department balance out the needs of?

To treat the customer fairly, efficiently and sympathetically with the need to ensure only valid claims are paid

While it is good practice to maintain quality service standards, what are consumers likely only to measure their experience against?

Their own perception of what good looks like

What could a consumer's own perspective of what good looks like come from?

• An experience of a different sector

• A previous claim with a competitor

What do insurers need to be able to adapt to and ideally stay ahead of?

The ever-changing demand of public expectations

What should insurers not do to adapt to customers needs?

Refer to a published set of standards

What can the publication of a claims philosophy do?

• Act as a strong statement of the service the insurer intends to provide

• Create a degree of accountability should the customer experience not match the expectations created

Why is it important for an insurer to have it's own unique claims philosophy?

There is great similarity in products and processes in the insurance industry

What does an insurer's unique claims philosophy translate into?

The claims experience

What does good customer service from a claims department typically incorporate?

• Efficient and prompt notification, investigation and settlement of a claim

• Treating the customer fairly, with empathy as a fellow human being

Who does providing good customer service benefit?

• The customer

• The insurer

What are the main benefits of quality customer service of an insurer?

• Encourages customer loyalty

• Attracts new customers

• Attracts and keeps high-quality employees through increased job satisfaction

• Marks the company out from its competitors

• Improves a company's profitability

• Increases productivity

• Improves the working environment

Why is encouraging customer loyalty a benefit of quality customer service?

It is a lot cheaper to keep customers than it is to get new ones

What can happen if a customer's claim is not handled according to their expectations?

• Severe dissatisfaction

• Protracted disputes which could get costly for the insurer and damage their reputation

Who are the parties that are involved in a claim?

• The first party

• The second party

• The third party

When a claim is made who is the person or company insured by a particular insurance company (the policyholder)?

The first party

When a claim is made who is the insurance company insuring the first party?

The second party

When a claim is made who is anyone else involved in a loss other than the insured and the insurer?

The third party

What is an extremely important part of the work of a claims department?

Handling third party claims

What is the coverage that would be available to third parties for motor insurance?

Cover for personal injury to, and damage to the property of, third parties

What must an insurer do if they are notified of a claim by its insured and they indicate that there is third party property damage or injury?

The insurer must start to take the necessary steps for handling these third party claims as soon as possible

What are the consequences that come about since the third party does not have a contractual relationship with the insurer?

• The third party must, legally, pursue their claim against the insured, not the insurance company (which will then indemnify its client i.e. the insured)

• In practice, the claim is likely to be presented to the insurer by the claimant or their representative

• The third party's expectations of the level of claims service may be greater than those of the insured because they may be hostile and may see the insurers as the insured's agent

• The third party may not identify with the insurer, and so may be more prone to exaggerating their claim

• The amount of pressure a third party can exert on the insurer to respond quickly will usually be less

• Conversely, a well handled third party claim may result in that claimant moving their own policy to the insurer at renewal

• A third party will not be fully compensated in the event of contributory negligence

• A third party will not be liable for any excess or deductible

• The recovery of legal costs will generally be more common, as a third party is more likely to use the services of a solicitor.

Why would the third party's expectations of the level of claims service be greater than those of the insured?

They are the victim of the insured's negligence

Why is the amount of pressure a third party can exert on the insurer to respond quickly usually be less than the insured's?

The insurer owes no loyalty to the claimant (the third party)

What is the situation where the third party will not be fully compensated in the event because they're partly to blame for what happened?

Contributory negligence

What happens if a third party is successful in their claim where a solicitor's service was involved?

The insurer will usually be obliged to pay their legal fees, unless the size of the claim does not enable recovery of legal costs

What are issues that can arise when managing third party claims?

• Third party claims are liability claims and could be more complex in comparison to other claims

• A third party's final option in a dispute is litigation and they may be more willing to issue court proceedings if they are not managed fairly

While there is no contractual obligation to do so, what is a common and good practice for an insurer's claims department to do?

Manage the needs of a third party to the same standards as are applied to a paying policyholder

Why is it important for a claims agent to manage the needs of a third party to the same standards as are applied to a paying policyholder?

This ensures that the claims handling process avoids disputes and delays, and may lead to increased business in the longer term

What is the process that a company carries out in order to assess the level of funds that are required to meet current and future claims liabilities?

Claims reserving

What is claims reserving a key indicator of?

If a company is financially solvent

What is claims reserving required for?

• Internal and external reporting purposes

• For monitoring financial performance

What is claims reserving used to assess?

• Overall financial performance of the company

• Relative profitability of the various classes of business

• Adequacy of premium rates

Why is claims reserving used to assess the overall financial performance of the company?

It will affect the net profit and net worth of the company

What is a claims reserve covering the whole book of business?

'Global' claims reserve

How do insurers estimate the future cost of claims?

• Insurers place an estimate on each individual claim file, usually split into categories to reflect the sections of the policy being claimed against

• In household claims, the estimate may be allocated towards the peril claimed against

What are the categories that claims files can be split into?

• Accidental damage (AD)

• Third party damage (TPD)

• Third party injury (TPI)

How does a claims department establish the size of required reserves?

• A value is placed on each claim

• An allowance is then made for direct claims expenses

What is an example of an allowance that is made for direct claims expenses when establishing the size of reserves needed?

The fee charged by a loss adjuster who has been called on to use their expertise in establishing a claim

Why are claims reserves regularly reviewed?

To ensure they continue to reflect the likely cost of the claim

Who are the vital parties that are involved in reviewing claims reserves?

• Underwriters

• Actuaries

• Claims managers

Why is it vital that underwriters, actuaries and claims managers are involved in reviewing claims reserves?

The reserving specialist will require their input on the book of business written and details of any unusual characteristics

What are the types of insurance fraud that claims agents need to be on the lookout for?

• Inventing a loss event that never took place

• Exaggerating the number of items stolen during an otherwise honestly reported break-in

• Deliberately creating an insured event

• Exaggerating the effects of an insured event

What is an example of claims fraud where the insured invented a loss event that never took place?

A burglary at home

What is an example of claims fraud where the insured deliberately created an insured event?

Throwing paint on a carpet at home

What is an example of claims fraud where the insured exaggerated the effects of an insured event?

Claiming compensation for whiplash after an innocuous car accident where no injuries were sustained

Why is it difficult to quantify insurance fraud?

It can go undetected

What has become increasingly important in regard to insurance fraud?

Quantifying it by collecting data on the types and amounts of fraud

Why is it important to identify and quantify the effects of fraud?

It is the first step towards eliminating it

What is important to have to prove fraud?

Strong evidence

What should be done in cases where fraud is not proved but the claim looks fishy?

It should ideally be categorized as suspicious

At what level is fraud prevention best undertaken?

At a strategic level

What do most jurisdictions have to lead the insurance industry's collective fight against insurance fraud?

Some form of insurance bureau

What is the purpose of an insurance bureau?

To act as a central hub for sharing insurance fraud data and intelligence

What are insurance bureaus able to do using its position at the heart of the insurance industry and it's access to data?

Disrupt organized fraud networks

What are the primary objectives of insurance bureaus?

• To help insurers identify fraud and avoid the financial consequences

• To support police, regulators and other law enforcement agencies in finding fraudsters and bringing them to justice

What has been the effect of the prevention and combat of fraud?

Regulators across the world are pushing hard to implement controls to minimise its impact

What is being harnessed in the drive toward fraud detection?

Technology

What is an example of how technology is being harnessed in the drive toward fraud detection?

Pooled claims databases where insurers can share information with a variety of other insurers

What has technology being harnessed in the drive toward fraud detection allowed insures to do?

Identify claimants who put in repeat claims by matching their new claims details against those already held

Who plays a vital part in detecting claims fraud?

The claims handler

What are some of the indicators of claims fraud?

• Claims made soon after a policy has been taken out

• Frequent change of insurer

• Uncharacteristic increase in the level of cover

• Financial difficulties, which may not be immediately apparent but may come to light

• Prevarication by the insured

• Excessive pressure to settle

• Inconsistencies in the story given

• Lack of co-operation

• Poor or missing documentation

• Perfect documentation, which appears to be 'too good to be true' to the experienced claims handler

Why is a frequent change of insurer an indicator of claims fraud?

This gives the impression that the claimant is trying to disperse the information held about them by frequent changes

What is an example of an uncharacteristic increase in the level of cover being an indicator of claims fraud?

A request to add accidental cover halfway through the policy term

What is an example of financial difficulties, which may not be immediately apparent but may come to light being an indicator of claims fraud?

When bank statements are provided to substantiate a loss of cash claim

Why is a lack of co-operation an indicator of claims fraud?

A genuine claimant has nothing to hide and would want their loss to be remedied as soon as possible

What is an example of poor or missing documentation being an indicator of claims fraud?

A total lack of receipts to substantiate purchase

What measures in the insurance industry that were implemented to enhance customer service and cut costs have also had the benefit of combating fraud?

• Completing claims forms over the telephone

• Claims settlement by replacement rather than cash

• The use of cognitive behavior tools to listen for inconsistencies in voice and action during the claims process

How has insurers completing claims forms over the telephone helped to combat fraud?

Individuals often find it harder to lie directly, as opposed to when merely filling in a form

How has claims settlement being issued by replacement rather than cash helped to combat fraud?

If a perpetrator claimed for a 'stolen' television to get cash, it would be frustrating for them to receive a replacement, which they would have to sell to get the cash

Why is claims settlement being issued by replacement rather than cash not a perfect solution to combat fraud?

The fraud would still be successful, but this acts only as a deterrent

Why is it most important for insurers to detect and eliminate as much fraudulent activity as they can?

To maintain a profitable account

Who do most larger insurers employ to help combat fraud?

One or more in-house fraud detection teams

Who are in-house fraud detection teams employed by larger insurers staffed by?

Experts who are often people with experience in the surveillance or security services and the police

If a fraudulent claim is paid, who does it have an impact on?

• The insurer

• The insureds

• Fraudulent claimants

How does fraudulent claims being paid affect the insurer?

• The cost of fraud is enormous

• If individual insurers fail to take action on this, it will have an impact on their bottom line (profit), claims costs will rise, meaning premiums will too, making them less competitive

• They may even get a reputation as a 'soft touch', which may lead to genuine insureds avoiding them whilst attracting an ever growing number of fraudulent claims

How does fraudulent claims being paid affect the insureds?

Genuine policyholders will be affected by the commensurate increase in premiums, not just the fraudsters

How does fraudulent claims being paid affect fraudulent claimants?

If they get away with it once, the temptation will be there to continue this practice in the future

Why is it important that insurers are seen to be preventing fraudulent claimants?

To protect the integrity of their genuine customers

Why is it important that insurers are seen to be prosecuting fraudulent claimants, through defending civil proceedings and on occasion bringing contempt proceedings?

• To show the fraudsters that crime does not pay

• To protect the premiums invested for genuine customers

• To protect the integrity of their genuine customers

What can happen no matter how efficient a claims department is or how well it explains its actions to its customers?

There will be situations where the customer is not happy with the outcome of their claim

What are situations where the customer would not be happy with the outcome of their claim?

• While the insurer turned down the claim for valid reasons, the customer feels it is unjustified or unfair

• The claim may have been agreed but the customer remains unhappy about the amount of settlement they have been offered

What has been put into place to deal with situations where the customer is not happy with the outcome of their claim?

Systems and structures