INS 21- Chapter 6: Claims

People matter, results count

Content

Claims
 Goals of Claim function
 Claim Personnel
 Claim Performance measures
 The Claim Handling Process
 Aspects of Property and Liability Insurance Claims
 Good Faith Claim Handling

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 Property & Liability Insurance Principles

Claims

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 Property & Liability Insurance Principles

Goals of Claim function

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Property & Liability Insurance Principle

 Goals of Claim function

• Keeping the insurer’s promise
 The insurer has to satisfy the insurer’s obligations to the policyholder as set forth in the insurance
contract
 Promise is made in the policy , namely "to indemnify the policyholder for financial loses“
 But not all claims will be paid.
 Only legitimate claims are paid by claim investigation (where the claim handling should be "good-
faith" claim handling)

• Supporting the insurer’s profit goal

Factors that can increase profit from Claim department actions:
 Control expenses
 Pay only legitimate claims

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Property & Liability Insurance Principle

 Claim Department Structure

 Chief Executive Officer
 Senior Claim Officer – heads the claim department
 Home Office and Remote Claim Offices
 Each remote claim office may have claim manager, one or more claim supervisors , and a staff of
 Claim representatives

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Types of Claims Representatives

Several different types of people participate in claim handling, depending on the circumstances.
 Staff Claim Representatives (inside and outside)
 A Staff Claim Representative in an insurance company performs some or all of the insurance claim
handling activities.
 An inside claim representative is an employee who handles claims that can be settled, usually by
telephone or letter, from inside the insurer’s office. They handle claims that are clearly either
covered or not covered and that do not involve questions about the circumstances or validity of the
claim. If a third party is involved the inside claim representative might use a tape recorder to take
statements about the loss from the insured, the claimant and any witness after obtaining their
permission to tape their statements.
 An Outside claim representative (field claim representative) is an insurance company employee who
handles claims that cannot be handled easily by phone or mail. They spend much of their time
visiting the scene of loss, intervene witnesses, investigating damage and meeting with the
insured's, claimants, attorneys, and other persons involved in the claim.

 Independent Adjusters
 They are independent claim representatives who offer claim handling services to insurance
companies for a fee. These independent adjusters can be either self employed or work for an
independent adjusting firm.

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Types of Claims Representatives….Contd

Several different types of people participate in claim handling, depending on the circumstances.
 Producers (Agents, Brokers, Insurance employees)
 An agency usually receives the first notification of a claim. Depending upon the size of the office,
the agency can have one person, several people or a department responsible for handling claims.
 If an agent has a authority, he or she might actually settle claims.
 Authority expressly is given to an agent by an insurer to settle or pay certain type of claims by
writing a claim draft up to a specified limit.
 Public Adjusters
 A public adjuster is a person hired by the insured to represent the insured in handling a claim.
Usually insured hires a public adjuster either because of claim is complex in nature or because of
loss negotiation are not progressing satisfactorily.
 Third Party Administrators
 The growth of self insurance plans has created a need for third party administrators who agree to
provide administrative services to other businesses that have self insurance plan in handling their
claims. Large independent adjusting firms sometimes function as TPAs for self insured business in
addition to providing independent claims handling services to the insurers.

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 Property & Liability Insurance Principles

Claim Performance Measures

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Measuring Claim Performances

 Claim performance measures

 Profitability Measures
 Loss expenses will be reduced
 Profitability is measured by loss ratio
 Increase in loss ratio indicates either,
 The insurer is improperly performing claim function
 Underwriting failed to select above-average loss exposures
 Actuarial department failed to price the insurer’s products correctly
 Quality Measures
Three of the more frequently used methods of evaluating a claim’s performance are
 Best practices
 Claim audits
 Customer satisfaction

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 Property & Liability Insurance Principles

Claim Handling Process

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Claim Handling Process

The activities mentioned below provide a framework for handling all types of property,
liability and workers compensation claims
 Acknowledging and assigning the claim
 Identifying the policy and setting reserves
 Contacting the insured or the insured’s representative
 Investigating the claim
 Documenting the claim
 Determining the cause of loss, liability and the loss amount
 Concluding the claim

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Claim Handling Process

 Acknowledging and assigning the claim:

 Major functions include,
 Acknowledgement receipt of the claim and assigning the claim to the claim representative
 Assignment can be based on territory, type of claim, extent of damage, work load,
 Once assigned, the claim representative contacts the insured/third party and explains the claim
process.
 Identify the policy and setting reserves
 If it is apparent from the loss notice that coverage may not be available for the loss , insured must
be notified through nonwaiver agreement or reservation of rights letter
 Nonwaiver agreement
 A signed agreement indicating that during the course of investigation, neither the insurer nor the
insured waives rights under the policy
 Reservation of rights letter
 An insurer’s letter that specifies coverage issues and informs the insured that the insurer is handling
the claim with the understanding that insurer may later deny coverage should the facts warrant it

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Claim Handling Process

 Setting Reserves
 Reserve is the initial amount kept aside for payment of loses, provided the loss is covered under the
policy
Example
 Reserves can be set for,
 Each type of loss (Both Property loss and Bodily injury loss)
 Each claimant in a single type of loss (conditions where in a type of loss more than one claimant
needs to be paid)
 Difficulty with setting accurate reserves
 Though reserves can be accurately set in first party related loses, setting accurate reserves in
cases of liability loses is difficult

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Claim Handling Process

 Contacting the insured or the insured’s representative

 This is done to discuss about the facts of the loss
 It can be ,
 Face to face meeting on the insured’s location or the loss location or it can be a telephone meeting
 Actions to be taken by Claim Representative’s after contacting the Insured
 Inform insured of what is required to protect damaged property
 Describe claim inspection and investigation process
 Inform insured about additional information , if needed
 Explain potential coverage questions, policy limitations , exclusions.
 Explain about the time it will take to process the claim

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Claim Handling Process

 Claim Investigation
Points to remember
 Develop an outline or notes to logically organize the investigation
 Ensuring information available for short span is investigated first
 Subrogation
 The process by which an insurer can, after it has paid a loss under the policy, recover the amount
paid from any party (other than the insured) who cause the loss or is otherwise legally liable for the
loss
 Documenting the claim
 Claim documentation can be done by,
 Diary systems
 File status notes
 File reports

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Claim Handling Process

 Determining the Cause of Loss, Liability and the Loss Amount

 The facts of the loss determine the cause of the loss
 Concurrent to the determination of cause of loss , insurer can determine the amount of loss
 Concluding the claim
 Payments or Claim Denial
 In case of payments , payees can either be parties named in the policy or third parties
 In case of denial, claim representative must analyze coverage carefully, investigate the loss
thoroughly, evaluate the claim fairly and objectively.

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Claim Handling Process – Property Insurance
Aspects of Property Insurance Claims
Verifying Coverage
 Confirming that valid policy was in effect , Determining that date of loss falls within policy period ,
Established whether damaged property is insured under policy.
  In addition to determining the facts surrounding the loss the claim representative must determine
the coverage provided by the policy will pay any or all claims submitted.
• Following are the checklist of questions which forms part of verifying the coverage: -
• Does insured has an insurable interest in the property?
• Is damaged property covered under the policy?
• Is the cause of loss covered under the policy?
• Do any additional coverages, endorsements or limitations on coverage apply?

Determining the cause of loss and Damage assessment

 It is necessary to establish the policy, the cause of loss, to assess the damage, and to verify the
coverage
 Property Claim investigation involves visiting the site to inspect the damaged property in determining
the cause of loss and assessing the damage occurred.
 Investigation must reveal sufficient information to verify whether the coverage exists under the policy
and the physical condition of the property before the loss occurred. Assessing damages involve such
activities as valuation of the property damaged by verifying the market value, bills of purchase, other
books of records, etc., as required on a case-to-case basis.

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Claim Handling Process – Property Insurance

 Determining the Amount of Loss

 Common Valuation Methods
• All property insurance policies include a valuation provision that specifies how to value covered
property at the time of loss. The most common property valuation methods are: -
  Actual Cash Value
The replacement cost of the property minus depreciation. Depreciation is - is the allowance for
physical wear and tear or technological or economic obsolescence.

 Replacement Cost
Cost to repair or replace the property using new material or like kind and quality with no deduction
for depreciation
 Agreed Value
A method of valuing property in which the insurer and the insured agreed on the value of
property at the time of policy underwriting, and that amount is stated in the policy declarations
and is the amount the insurer will pay in the event of total loss to the property.

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Claim Handling Process – Property Insurance

 Concluding the Claim

 The final part is of property claim handling to finalize claim amount which shall be mutually
negotiated and settled between the parties to the insurance contract.
 
The two other factors that can affect insurer’s cost for property claims: -
Subrogation
 Subrogation is an insurer’s right to recover payment from a negligent third party. When insurer
pays an insured for a loss, the insurer assumes the insured’s right to collect damages from a
third party responsible for a loss.

Salvage rights
 Salvage Rights are the rights of the insurer to recover and sell or otherwise dispose of insured’s
property on which the insurer has paid a total loss or a constructive total loss.
Constructive total loss
• Constructive Total Loss exists when a vehicle (or other property) cannot be repaired for less
than its actual cash value minus the anticipated salvage value.

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Claim Handling Process – Liability Insurance

Liability Insurance Claims

How Liability Claims Differ from Property Claims
 Claimant is third party. So he may perceive claim representative as an adversary
 Amount of loss determination in third party bodily injury is difficult
 Whether insured was intentional
  Investigation
  After receiving the first report of injury or damage, the claim representative must gather more
detailed information relating to the liability claim. The amount of loss will be relevant only if the loss
is covered under the insured’s policy, if the insured is legally responsible for the loss. The claim
representative’s initial emphasis must be on determining how much and why the loss has occurred
and whether it appears that the insured is responsible.
• Determining how the loss has occurred and assessing the situation
• Verifying Coverage (Coverage verification for liability claims follows the same procedure as
property claims)

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Claim Handling Process – Liability Insurance

Liability Insurance Claims

 Cause Of Loss related Activities
 Interviewing insured, claimant, any witness available
 Speaking to the injured party or their representative
 Denying claim if the insured’s act was intentional
 Preferring to settle claims out of court
 Determining the Amount of Damages
 Legal liability might involve following type of damages
Compensatory Damage
 Includes both special and general damages that are intended to compensate a victim for harm
actually suffered.
Punitive Damage
 Are damages awarded by a court to punish wrong doers who, through malicious or
outrageous actions, cause injury damage to others .

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Claim Handling Process – Liability Insurance

Liability Insurance Claims

 Special Damages : Specific, out of pocket expenses are known as special damages. In case of
bodily injury claims these damages usually include hospital expenses, Doctor and miscellaneous
medical expenses, ambulance charges, prescriptions and loss to wages for the time spent away
from the job during recovery.
 General Damages are compensatory damages awarded for losses such pain and suffering, that do
not have a specific economic value.

 Negotiation and Settlement

 While the award for damages might result from court decisions, a very large percentage of liability
cases are settled out of court through negotiations between the claim representative and the
claimant or the claimant’s attorney. If negotiations do not bring about a settlement, the claimant has
option of suing for the alleged damages. The court then decides who is at fault and determines the
value of the injury or damage.

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 Property & Liability Insurance Principles

Catastrophe Related Special Considerations

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Property Catastrophe Claims

Special Considerations For Property Catastrophe Claims

 Changes the insurers make to their work operations are,
 Abbreviated claim handling procedures
 Temporary increase of claim settlement authority to producers to preselected independent adjusters
 Bringing claim representatives from other regions to resolve claims in catastrophe affected region
 Suspending all but the most essential recordkeeping
 Paying additional living expenses as the priority.

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 Property & Liability Insurance Principles

Good Faith Claim Handling

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Claims Handling – Aspect of Good-Faith

Good-faith Claim Handling

 Handling claims in ethical and professional manner
– It can be achieved by,
 Effective interpersonal skills
 Effective communication skills
 Keeping the claimants at peace of mind

 Law of bad faith:

 An insurance company's unreasonable and unfounded (though not necessarily fraudulent) refusal to
provide coverage in violation of the duties of good faith and fair dealing owed to an insured. Bad
faith often involves an insurer's failure to pay the insured's claim or a claim brought by a third party

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Claims Handling – Aspect of Good-Faith

Elements of Good-faith Claim Handling

Thorough, timely and unbiased investigation
Complete and accurate documentation
Fair evaluation
Good faith negotiation
Regular and prompt communication
Competent legal advice
Effective claim management

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Unfair Claim Practices Laws

Unfair Claim Practices Laws

 These laws are state laws that specify claim practices that are illegal. The prohibited claims
practices usually include
  Misrepresentation of pertinent facts or insurance policy provisions relating to the coverage at
issue in a claim.
 Failure to acknowledge and promptly respond to communications with respect to the claims
arising out of insurance.
 Actions that compelled an insured to sue to recover amounts due under insurance policies by
offering amounts that are substantially lower than the amounts ultimately recovered in legal
actions brought by such insureds.
 Refusing to pay claim without first conducting reasonable investigation based on all available
information.

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Thank You !!

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