In-Depth Notes on Insurance Claims Principles
Claims Explained
Claim
In insurance, a claim represents the insured's demand for payment for a loss covered by their policy.
Until a claim is made, insurance exists only as a promise.
Without claims, there's no need for insurance as it is the claims that justify its existence.
Loss
The term "loss" is often used interchangeably with "claim"; it refers to the financial amount an insurer pays when insured risk materializes.
Insured parties who do not suffer a loss do not receive tangible benefits but enjoy peace of mind.
Upon occurrence of a loss, the integrity of the insurer's promises is assessed through claims service.
Losses can be:
Direct Loss: Losses that result in damage to the insured property itself due to an insured peril.
Indirect Loss: Losses that occur as a consequence of a direct loss, such as lost income due to damage preventing property use.
Prejudice
Refers to a disadvantage faced by insurers, particularly related to late reporting of claims.
Delaying claim filing can result in coverage denial as insurers may be prejudiced in assessing the loss.
Claims Terminology
Forfeiture
Loss of rights due to non-compliance with obligations or conditions.
Prescription
The legal time frame within which a claim must be brought by the policyholder.
Statute of limitations
Defines how long parties have to take legal action based on the timing of the injury or damage.
Salvage
Refers to the remaining value of damaged property that can be sold to lessen the overall loss incurred by the insurer.
Subrogation
A legal process allowing insurers who settle a claim to recover costs from those legally responsible for the loss.
Contribution
Occurs when multiple insurers cover the same loss; they share the payment based on their respective policies.
Coinsurance
A clause that encourages insureds to maintain adequate insurance levels; if underinsurance occurs, they bear part of each loss.
Stated Amount Coinsurance
A clause stipulating a specific dollar amount; no penalty if the amount insured matches the value.
Importance of Adequate Insurance
Adequate Insurance Importance
Ensures full reimbursement for losses.
Insurance rates depend on total values being adequately insured to meet loss payments.
Underinsurance can result in financial strains on insureds and insurers alike.
Claims Process Overview
Claims process begins with the insured reporting the loss. This can involve multiple methods of communication.
Claims handlers will:
Review which policies apply.
Investigate any coverage issues.
A loss adjuster is assigned who:
Verifies coverage and evaluates the loss.
May negotiate or deny claims based on assessments.
Role of Agents, Brokers, and Adjusters
Agents/Brokers:
First point of contact for the insured.
Assist in reporting claims and explaining the claims process.
Adjusters:
Investigate claims and negotiate settlements.
Can be salaried staff, independent, or telephone adjusters handling claims remotely.
Public Adjusters:
Independent adjusters employed by the insured to negotiate on their behalf, particularly in disputes with insurers.
Require licensing in some jurisdictions.
Advanced Claims Management
Emerging role of Artificial Intelligence in claims adjusting helps manage claims amidst expert shortages and facilitates efficiency.
Claims Department Responsibilities:
Ensure claim validating processes, customer service standards, accurate record maintenance, and compliance with legalities.
Adjusters must always verify authority, maintain client relationships, and uphold negotiation ethics.
Understanding various adjuster roles is crucial:
Independent Adjusters: Consultants from outside firms requiring licenses.
Staff Adjusters: Company employees managing internal claims.
Telephone Adjusters: Handle smaller claims efficiently without in-person assessments.