RMI 3502 Topic 11 - Claims function

Claims activities

- Claims investigation

- Structured Settlements

- Rehabilitation

- Subrogation

- Salvage

- Loss reserving

The claim settlement process

- Acknowledge & assign the claim

- ID the policy & set the reserve

- Contact the insured

- Investigate & Document the claim

- Determine cause of loss, liability, loss amount

- Conclude the claim

Staff adjuster (Inside)

Represents: insurer

- Employee

- Salaried

- Used for simple, first-party claims

Staff Adjuster (Outside)

- Represents insurer

- employee

- Salaried

- Used for complicated first-party & all third-party claims

Independent Adjuster

- Represents insurer

- Independent contractor

- Fee based compensation

- Used when there is an overload on the insurer, special expertise, or remote location access

Public adjuster

- Represents the insured

- Independent contractor

- Compensated by percentage of settlement (10%)

- Used for large, complex claims; when the insurer doesn't have time to negotiate settlement

Agent

-Represents insurer

- Independent contractor

- Compensated by part of service under policy (commission)

- Used as trusted agents,

for very small first-party claims

Investigating a claim: Property

- Did the insured suffer a loss?

- Damage assessment

- Inventory of damaged or lost property

- Cause of loss

- Reservation of rights (Prevent bad faith lawsuits)

Investigating a claim: Liability

- Inspect the scene of the accident and interviewing witnesses as soon ASAP after the loss, before evidence is lost & while witnesses are available and memories are "fresh"

- Accident reconstruction to determine cause of loss

- Investigators also monitor social media to detect fraud

KIP - Property insurance causes of loss

- Named peril: Covered causes of loss and specifically listed

- Open peril: All causes of loss are covered except those specifically excluded

KIP - Property insurance valuation basis

- Replacement cost: Repair or replace with like kind and quality

- Actual cash value: Replacement costs minus depreciation

- Repair cost: Repaired with modern material

KIP - Property insurance amount

- Loss settlement: Homeowners policy condition at least 80% of value insured or penalty applies to partial losses

- Coinsurance: Commercial property requires at least 80% of value be insured or penalty applies to partial losses

KIP - Liability Insurance Coverage Trigger

- Occurrence: Policy in effect when loss occurs, provides coverage

- Claims-made: Policy in effect when loss is reported, provides coverage

KIP - Liability insurance limits

- Per occurrence: Maximum amount covered from a single loss

- Aggregate: Maximum amount covered for all losses

- Specific limits: Maximum amount covered for certain losses

Property Negotiation and settlement

- Appraisals: If disputes over amount, each party selects an appraiser, the two appraisers select an umpire, an amount agreed to by any two of the three will be the amount of the loss paid

Liability negotiation and settlement

- Lump sum settlement (one payment)

- Structured settlement

- Alternative dispute resolution (Mediation, arbitration, appraisals)

- Litigation in court

Claims contribution to marketing

- Customer satisfaction

- Timeliness of settlements

- Prepare to explain future changes in premium

Claims contribution to Underwriting

- Fair, consistent settlements

- Changes in loss exposures

- Problem with types of exposures or insureds

-

Voice of the customer expectations

- Knows the business of the client (claimant)

- Access to global recourses outside of home country if needed

- Investigation and respose to 100% of data requests within _ days of claims notice

- responds to urgent requests within one biz day

- Confidentiality and use of secure technology

- Proactive in providing updates on open claims

Covid-19 impact on insurers

- Likely impact of pandemic on market cycle: further hardening, pandemic and bankruptcy exclusions, increased pricing

- Which lines of ins are being affected: D&O, Workers comp, standalone cyber,

professional liability, trade credit

Rehabilitation

Physical therapy services that are provided to help injured claimants quickly resume their lives as normally as possible

Salvage

The insurance company takes ownership of damaged property and sells it to reduce the amount of the loss paid

Subrogation

Rights of recovery from a negligent third party are transferred to an insurance company when it pays a loss that was caused by the negligent third party

Individual Case loss reserving

- Estimate based on circumstances and adjuster's experience

- Typically used for bodily injury claims

Roundtable loss reserving

- A consensus of several adjusters who have evaluated the claim

- Typically used for serious, prolonged claims

Average value loss reserving

- A predetermined dollar amount for certain types of claims

- typically used for relatively small, physical damage claims

Tabular values loss reserving

- Values are selected from a table based on varying characteristics such as age, gender, injury, medical procedure

- Typically used for workers comp, disability, accident and health claims

Formula loss reserving

- A mathematical formula is used when consistent ratios exist between certain costs

- Typically used for medical and wage loss claims in workers comp

Expert system loss reserving

- A software application is used

- Similar to the formula approach, more subjective information may be used, such as location and specific doctor

Loss ratio loss reserving

- Aggregate reserves are established for a line of insurance

- Typically used for claims under medical malpractice and other long-tail lines of ins.

IBNR loss reserving

- Estimates based on past payout patterns

- Especially important in long-tail lines of insurance

Loss reserving concerns for Insurers

- Profitability and solvency

•The "cheating phase" (under reporting incurred losses to show higher profits) in a prolonged soft market

•Accuracy: "Stair Stepping" (periodic increases in reserves for a loss due to underestimating)

Loss reserving concerns for Regulators

- Solvency and ability to pay future claims

The leading cause of insurer impairments: inadequate reserves

Loss reserving concerns for Tax Agencies

- Proper deductions for income tax reporting

•IRS insists on discounting loss reserves to show higher net income for taxation purposes

•Could lead to under-reserving losses if management doesn't know the difference

Loss reserving concerns for Investors

- The true measure of financial status and level of risk

- Investors want accuracy; don't want uncertainty

Loss reserving concerns for policyholders

- Payment of future claims

- Employers would be concerned about high loss reserves increasing their experience modification, and losing discounts on workers comp premiums

Quantitative Claims performance measures

- Loss ratio

- timeliness of reports

- timeliness of reserving

- timeliness of payments

- Number of files opened per month

- Number of files closed per month

- Number of files reopened per month

- Average claims settlement value by claims type

Qualitative Claims performance Measures

- Realistic reserving (stair-stepping reserves)

- Accurate evaluation of insureds liability

- Follow-up on subrogation opportunity

- Litigation cost mgmt

- Proper releases taken

- Correct coverage evaluation

- Thorough investigations

(Control) Claims guidelines, policies, and procedures

- For staff and independent adjusters

- Ensure consistency in claim handling

- training new staff

- defense in "bad faith" litigation

- Diary of suspense system

- Activity log

Controls on the claims function - controls

- Reports

- Access security

- Authority levels (reserves, settlements)

- Tracking

(Control) Supervisor and manager reviews

- claim code accuracy

- reserve accuracy

- payments

- reports

- activity logs

- file documentation (Police reports, medical reports, damage estimates)

(Control) Claims audits

- Internal: Procedures followed, properly documented, reserves made, training necessary?

- External: Overall claims handling, reserves, investigate consumer complaints, procedures followed, documentation, violation of claims laws

Claims contribution to marketing

- Customer satisfaction

- Timeliness of settlements

- Prepare marketing to explain future changes in premium

Claims contribution to Underwriting

- Fair, consistent settlements

- Changes in loss exposures

- problems with types of exposures or insureds

- Changes in court rulings

Claims contribution to actuaries

- Accurate loss payments and reserves

- accurate classification codes

- Loss expenses

- loss recoveries (Salvage, subrogation, reinsurance, deductibles)

Compensatory Damages

A payment awarded by a court to reimburse a victim for actual harm.

Special Damages

A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages

General Damages

A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific measurable expenses

Punitive damages (exemplary damages)

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages