BCP CH 7 Basic Claims Procedures in Insurance

1. INTRODUCTION

• Risk Pooling in Insurance: The core principle of insurance relies on pooling risks to cover losses effectively. Prompt and fair claims handling is crucial for maintaining an insurer's reputation.
• Claims Handling Variations: The process of claims handling may differ across insurance classes, but fundamental methods and procedures are generally consistent.
• Overview: Examination of claims procedures including loss notification, investigation processes, proof of loss preparation, legal requirements, insured duties post-loss, claim conditions, settlement options, insurer rights post-claim, and claim disputes.

2. GENERAL CLAIMS PROCEDURES

A. Notification Of Loss

• Responsibility of Insured: Insured parties must promptly notify insurers about claims, often within a specified period.
• Importance of Timeliness: Quick reporting enables insurers to investigate and mitigate further losses.
• Claim Registration: Claims are recorded in the insurer's systems, holding essential historical data for underwriting and fraud checks.

B. Preliminary Validation Check

• Insurers perform checks including:
  • Validity of policy issuance and status at loss time.
  • Confirmation that loss pertains to an insured peril.
  • Coverage of property under the policy.
  • Claimant's entitlement to the payment.
  • Timeliness of loss notification according to agreed conditions.

C. Claims Reporting

• Claim Forms: The principal method of notifying claims is through a claim form, which collects vital information about the loss.
• Alternative Notification Methods: Notifications can also be made via phone or email but should ideally be followed up in writing.
• Involvement of Loss Adjusters: For larger claims, insurers may hire loss adjusters at their expense to assess the claim.

D. Investigation & Assessment

• Investigation of Claims: Claims are investigated to ascertain existence and cause of loss, with smaller claims typically requiring less detailed scrutiny.
• In-house vs. Independent Investigators: Minor claims are typically verified by in-house staff, whereas larger, more complex claims involve independent loss adjusters.
  • Investigation Steps:
  • Checking coverage, meeting insured parties, inspecting property, protecting from further damage, determining cause, assessing liability, and recovery possibilities are essential steps.
  • Coverage Pricing and Indemnity: It’s important to determine whether the sum insured aligns with the current value of the property to avoid partial claims.

E. Preparation Of Proof Of Loss

• Final Report: After investigation, loss adjusters provide reports outlining findings, guiding claim settlements.
• Legal Title Requirements: Claims such as death benefits require proof of entitlement (probate or nomination).
• Discharge Requirements: Before payment, it’s vital to secure a discharge to avoid future disputes.

3. ONUS OF PROOF

• Insured’s Responsibility: The insured must demonstrate that a loss occurred due to an insured peril and present evidence of the loss's financial value.
  • Documentation Required: Evidence may include receipts or repair estimates.
• Insurer's Duties: Insurers must verify the claim's legitimacy, ensure the insured's correct identity, and ascertain claim conditions compliance.

4. DUTIES OF THE INSURED AFTER A LOSS

A. Implied Duties

• Common Law Duties: Insured must minimize damage as if uninsured. Immediate reporting, such as notifying fire services during a fire, is essential.

B. Express Duties

• Policy Conditions: Policies include specific conditions the insured must meet, breach of which can lead to claim rejection.
• Notification Requirements: Prompt written notifications and submission of evidence are essential after a loss occurrence.

5. USE OF LOSS ADJUSTERS & OTHER CLAIMS PROFESSIONALS

A. Loss Adjusters

• Independent Evaluation: Loss adjusters provide impartial assessments, often engaged by insurers to review complex claims.
• Investigation Steps By Loss Adjusters: Include visiting claimants, assessing damage, submitting initial and final reports, and negotiating settlements.

B. Other Claims Professionals

• Claims Inspectors and Specialists: Various professionals may be employed, such as forensic scientists for fire investigation or restoration specialists for damages.

C. Approved Reporting Centres

• Post-accident, policyholders must report incidents to designated centres as per policy conditions within specific time frames.

6. AVERAGE & OTHER CLAIMS CONDITIONS

A. Average Clause

• Implications of Underinsurance: E.g., claim payments may be proportionate if coverage is deemed inadequate.

B. Contribution Principle

• Insurers may share payments based on their respective liability amounts across multiple policies.

7. INSURANCE FRAUD

• Understanding Fraud: Fraudulent claims undermine the insurance system involving false or exaggerated claims.
• Insurers’ Rights on Fraud: Fraudulent actions can lead to forfeiture of claims, with insurers needing robust proof before rejecting claims.

8. CLAIMS SETTLEMENT OPTIONS

• Settlement Methods: Options include repairs, replacements, reinstatements, or cash payments based on circumstances.
• Example: Car accidents may entail direct repairs or cash settlements based on the conditions agreed.

9. REINSTATEMENT OF SUM INSURED

• Coverage Restoration: Some partial loss payments may adjust the sum insured for future claims.

10. RIGHTS OF THE INSURER AFTER A CLAIM

A. Right To Salvage

• Insurers may seek salvage rights to any remaining property after a total loss payment has been made.

B. Subrogation Rights

• Insurers can recover losses from third parties after indemnifying the insured.

C. Right To Investigate

• Insurers have the right to investigate claims thoroughly before making payments.

11. CLAIM DISPUTES

A. Mediation

• A voluntary dispute resolution process facilitated by a neutral third party to reach a mutually acceptable agreement.

B. Arbitration

• Binding decision-making process for dispute resolution, especially concerning monetary compensation.

C. Litigation

• Legal proceedings to resolve unresolved disputes following failed negotiations.
• Differences: Mediation emphasizes negotiation; arbitration results in binding decisions, often resembling court rulings.

Appendices

• Claim Form Example: Contains details on how to report damages and submit claims, highlighting essentials like personal particulars, incident details, and claims description.