Chapter 3 Flashcards
(122 cards)
1
Q
Why are claims staff so important?
A
They have a vital role in shaping the opinion of the policyholder on their insurer and they manage pooled funds
2
Q
What is the 4 main roles of a claims handler?
A
- Deal with claims quickly and fairly
- Settle claims with minium wastage
- Estimate accuracy the cost of outstanding claims
- Distinguish between genuine and fraudulent claims
3
Q
What is leakage?
A
Avoidable overpayment
4
Q
What are a companies service standards?
A
How it intends to deal with a claim
5
Q
What is good customer service?
A
It includes efficient and prompt notification of a claim and treating customers fairly / with respect and empathy
6
Q
What are benefits of good customer service?
A
Encourage loyalty, attracts new customers, keeps high quality customers, improves profitability and working environment
7
Q
What is the first party?
A
The insured (policyholder)
8
Q
What is the second party?
A
The insurance company
9
Q
What is the third party?
A
Any one else involved in the loss event
10
Q
Does the third party have a contractual relationship with the second party?
A
No
11
Q
What are some negatives of a poor second party handling of the third party claim?
A
Hostile behaviour, exaggerated claims, more costs as the third party is more likely to go to court
12
Q
What are some positives of a good second party handling of the third party claim?
A
Good reputation and increased business in the long term
13
Q
What is reserving and why do insurers need to do it?
A
It’s the process of estimating the level of funds required to deal with current and future claims.
To prove solvency.
14
Q
What is the main way insurers arrive at reserve figures?
A
They estimate based on the type of claim
15
Q
What is a global claim reserve?
A
A reserve that covers the whole book of business
16
Q
What is the number 1, main objective of claims reserving?
A
To estimate the future cost of claims
17
Q
What is the Outstanding Claims Reserve?
A
Its an aggregation of claims reserves for cases that have been reported to the insurer but not yet settled
18
Q
What is an IBNR reserve?
A
A reserve for claims that have been incurred by not yet reported
19
Q
How is an IBNR reserve usually arrived at?
A
Statistical techniques that take into account past claims experiences
20
Q
What are some reasons a claim might be IBNR?
A
There is a delay in reporting a claim due to holidays e.g., insurers office closed for Christmas. The insured is not yet aware a claim exists e.g., asbestosis related injuries aren’t often realised until years down the line.
21
Q
What is an IBNER reserve?
A
An incurred but not enough reported reserve used to help cover the shortfall in claims underestimated
22
Q
Why might there be an IBNER claim?
A
New evidence comes to light, the insurer had insufficient evidence at the time, injuries worsen over time etc…
23
Q
What are equalisation reserves?
A
Required by law and designed to smooth fluctuations in loss ratios (Equalisation reserves are special reserves that insurers set aside during profitable years to cushion the financial impact of unusually high claims in future years — effectively smoothing out earnings over time. Done to protect policyholders)
24
Q
What are catastrophe reserves?
A
Set up to cover a large number of related individual losses arising from one event e.g., a hurricane
25
What are provisions for claims handling expenses?
Money set aside to cover the anticipated costs of settling claims e.g., office expenses and LA fees
26
What are re-opened claims reserves?
A reopened claims reserve is money set aside to cover the potential cost of claims that were previously closed but later reopened due to new developments — like new information, legal action, or worsening injuries.
27
What are unearned premium reserves and unexpired risk reserves?
URR is the extra amount an insurer sets aside if future claims are expected to cost more than the remaining premium. UPR is the money the insurer owes back (in a sense) because the insurance hasn't been “used up” yet.
28
What is the IFB and what does it do?
Insurance Fraud Bureau.
Share information on a data base across the industry.
29
What are the 2 main objectives of the IFB?
1. Help Identify Fraud
2. Support Police and other officials in finding fraudsters and bringing them to justice
30
What are the 4 main types of fraud in insurance?
1. Inventing a loss that never too place e.g., pretending a bulgur took something
2. Exaggerating a loss e.g., saying more things were stolen that actually were
3. Deliberately causing a loss e.g., throwing paint on an insured carpet
4. Exaggerating the effects of an event e.g., saying you have whiplash
31
What is the Insurance Fraud Cheatline?
A free, confidential tool used by the public to report suspected fraud
32
What is the IFED and who are they supported/funded by?
The Insurance Fraud Enforcement Department are a special branch of the met police specialising in tackling insurance fraud. They are funded by a partnership with Lloyds of London and ABI.
33
What is the Insurance Fraud Register?
A database of known insurance fraudsters used by insurance companies to help prevent fraud from known parties/groups
34
What is the IFiHub?
A fraud intelligence hub / platform with intelligence about fraudsters that can be shared
35
What is the MID?
A database used by the police of all insured cars - used to help tackle uninsured drivers
36
What is the MIAFTR 2 and what is it used for?
Motor Insurance Anti-Fraud and Theft Register - used to check if a vehicle has been categorised as a total loss to help avoid cars being claimed for twice
37
What is the CUE?
Claims & Underwriting Exchange - a data base that contains information on personal lines claims from the last 3 years. It's aim to see if the same insured makes multiple claims.
38
For who it compulsory to check CUE?
Claimants solicitors before they put anything on the claims portal
39
What is the art loss register?
A register of all stolen art to help increase the recovery rate of stolen art and deter theft
40
What are some common indicators of fraud (name 5)
1. Claims made soon after the policy is taken out
2. Frequent change of insurer
3. Uncharacteristic increases in cover half way through the policy
4. Financial difficulties
5. Excess pressure to settle
6. Inconsistencies in stories given
7. Poor or missing documentation
8. Perfect documentation 'too good to be true'
9. Prevarication by the insured (avoiding the truth or misleading.)
41
Name 3 ways a claims handler can help prevent fraud -
1. Asking insured to complete claims forms over the phone (as people find it harder to lie)
2. Settlement by replacement rather than cash
3. Cognitive behaviour tools (listening for inconsistencies in voice.)
42
What are the consequences of fraud for the insurer?
Massive loss of earnings / an impact on their bottom line (£2.1 billion per year) & reputation for being seen as a 'soft' touch.
43
What are the consequences of fraud for the policyholders
Increase in premiums
44
What are the consequences for a fraudulent claimant if their claim is paid?
The temptation to repeat their offence
45
Does precedent in UK law say that an exaggerated claim will be covered?
It didn't used to be covered at all if there was exaggeration but new ruling suggests it will only not be covered if the exaggeration relates to the loss in question. E.g., if the exaggeration has no effect on the actual event/loss - it should not be thrown out.
46
According to the Insurance Act of 2025 - when does a contract end if there has been fraud?
The contract can be terminated from the time of the fraudulent act.
47
If a fraudulent act occurred on 03/06 and a legitimate claim occurs on 15/06 - will the legitimate claim be covered?
No as the contract is terminated from the time of the fraudulent act. (Prior to the claim)
48
If a fraudulent act occurred on 03/06 and a legitimate claim occurred on 10/04 - will the legitimate claim be covered?
Yes - as all legitimate claims prior to the fraudulent act are covered.
49
What does the CJCA of 2015 discourage?
Dishonest PI claims e.g., where an injury has been greatly exaggerated.
50
When will an entire PI claim be struck out?
When the claimant has been fundamentally dishonest
51
Who does the PRA regulate and what is it part of?
It's part of the bank of England and supervises banks and systemically important insurers.
52
Who does the FCA regulate?
It's responsible for smaller authorised firms like insurance brokers.
53
Can insurers refuse a claim for misrepresentation?
Only if there was a breach of warranty or fraud.
54
How long should firms retain records for according to the ICOBS?
As long as relevant for the purposes for which they were made.
55
What is a consumer?
A person who takes out insurance for reasons wholly unrelated to their trade
56
What is a commercial customer?
A person who takes out insurance for reasons related to their trade
57
When presenting a risk, under CIDRA, what is the duty of the consumer?
To take reasonable care not to make misrepresentations. They need to respond to any questions honestly and with care.
58
What are the 2 types of misrepresentation for consumers?
1. Deliberate / reckless
2. Careless
59
Who does the burden of proving misrepresentation fall onto?
The insurer
60
What can insurers do if the representation was deliberate or reckless?
Avoid the contract completely
61
What 3 things can insurers do if the representation was careless?
1. Avoid the contract but return the premium
2. Treat the contract as though different terms have been applied
3. Charge a higher premium (making the claim amount reduced proportionally)
62
What duty do non-consumers have when it comes to representation?
The duty of fair presentation
63
What does the duty of fair presentation mean?
Proposers must disclose every material circumstance which an insured knows or ought to know or provide insurer with sufficient information.
64
Can a proposer (non-consumer) just 'dump' information to the insurer in a presentation?
No
65
What does 'constructive knowledge' mean?
Knowledge the insured ought to know or have made a reasonable effort to find out
66
Does the commercial customer have to disclose information the insurer ought to know?
No
67
How does the Insurance Act 2015 define the information an insurer 'ought to know'?
1. Common Sense / Knowledge
2. Things they should know related to the relevant class of business
3. Things an agent would have passed on
4. Information readily available
68
Can an insurer refuse a claim if a non-consumer did not disclose something material?
If it was deliberate and reckless - yes and they can keep premium even if they still would have entered the contract knowing this information.
If it was innocent or negligent - they can implement what they would have done should they have been aware of this information
69
What happens to a contract if an insured breaches a warranty?
The breach of warranty suspends the contract rather than terminates it. It remains suspended until the breach is remedied.
70
Can insured terminate a contract for breach of warranty?
No only suspend it
71
Can insurers avoid a claim where an insured breached an irrelevant warranty?
No
72
What are 'basis of contract' clauses and why have they fallen out of favour?
It essentially mean everything the insured says in their insurance application becomes a legally binding promise (a "warranty").
If any statement is later found to be untrue—even if innocent or unrelated to the claim—the insurer could void the entire policy and refuse all claims - this was seen as too harsh
73
What is 'Contracting Out?'
"Contracting out" in insurance law refers to a situation where insurers and policyholders agree to override or avoid certain standard legal rules or statutory protections by including specific terms in the insurance contract.
In other words:
Contracting out = Insurer and insured agreeing (in the policy wording) to opt out of some legal protections that would normally apply.
74
Can insurers 'contract out' of consumer policies?
Not if it makes the consumer in a worse position (it protects the consumer first)
75
Can insurers 'contract out' of commercial policies?
Yes but only if they are transparent about it before the policy is entered into
76
What did the Enterprise Act 2016 add to the Insurance Act?
The implied term that every claim must be paid in a reasonable time.
77
Who should firms nominate to deal with complaint handling?
A senior individual.
78
Do authorised firms have to be part of the FOS?
Yes it's compulsory
79
What is the FOS?
The financial ombudsman service - a free, impartial service which deals with unresolved disputes
80
Who is eligible to claim under the FOS?
1. Consumers
2. Micro-enterprises with a balance sheet below 2 million euros
3. Charities with an income of less than 6.5 million
4. Trusts with a net value of less than 5 million
5. Small Businesses with a turnover of less than 50 employees or a turnover of less than 6.5 million
6. Guarentors
81
When can claimants approach the FOS? Can they do it as soon as they aren't happy?
No - they have to have exhausted every internal complaints procedure first.
82
Can you have a legal case against a firm and still approach the FOS?
No - the FOS will not deal with any legal disputes
83
When can complainant refer their complaint to FOS? (timescale wise)
6 months from the date of the firms letter advising of it's final decision
6 years after the event
3 years after the complaint know or should have known they have cause for complaint
84
What does 'time-barred mean'?
An organisation can reject a claimant taking a case to the FOS after set time periods have passed
85
Will the FOS consider cases that passed the time barred stage?
Only in exceptional circumstances
86
If the FOS asked an insured to produce documents - would they have to?
Yes, not doing so would be seen as contempt in court
87
How long do the FOS aim to investigate and answer the complaint?
Within 3 months
88
How are most disputes resolved through the FOS?
Mediation
89
The the FOS bound by law?
No
90
What 2 types of redress do the FOS use?
1. Money Award
2. Directions Award
91
What is the current financial limit the FOS can award to the insured/require firms to pay which is binding.
£430,000
92
Can the FOS make insurers pay above £430,000 to the insured?
No they may suggest it but it won't be legally binding
93
What % interest can the FOS decide firms should pay on top of any compensation due?
8%
94
What is the directions award?
Telling firms what actions they need to do to put things right.
95
What are 3 ways the FOS might suggest making things right in a directions award?
1. Paying a claim that was previously rejected
2. Apologise personally to the customer
3. Calculate or pay redress
96
What method does the FOS have to tell the insured about their decision and do they have to say why they've come to that decision?
In writing. Yes.
97
What happens if the insured accepts an FOS decision?
It is legally binding on the respondant.
98
What happens if the insured rejects an FOS decision?
They are free to pursue the matter in court and the decision is not legally binding.
99
How is the FOS funded?
A levy on all firms and a case fee.
100
What is an arbitration clause?
If a customer feels like amount awarded in a claim is unjust - they have the right to dispute it in arbitration.
101
Why do insurers prefer arbitration over litigation even though it's more expensive?
It allows disputes to be settled in private (so no bad publicity) and by experts.
102
What does the insured have to provide once they decide to resort to arbitration?
1. The names & addresses of all parties
2. Brief description of the dispute and how they'd like to see it resolved
3. Who they think the arbitrator should be or how they should be chosen
103
How many arbitrators can there be? And why do they prefer not to have 2?
Up to 3. There's a risk they will not agree and there can be majority.
104
Do arbitrators have the same powers as courts and is their decision final?
Yes -
Their decision is designed to be final on all questions of fact and it's only possible to challenge their decision on very specific grounds/limited circumstances.
105
What does ADR offer?
Alternative ways of settling disputes without resorting to litigation.
106
What are the 2 main adjudicative options to settle disputes?
Arbitration & Adjudication
107
What are the main differences between adjudication and arbitration?
Arbitration is private, legally binding, less formal, confidential and voluntary.
Adjudication is public, can be appealed, more formal, part of public record, and you may be required to attend.
108
When may expert determination be needed and is it legally binding?
In technical disputes - yes.
109
What does non-adjudicative mean?
A non-adjudicative option refers to a method of resolving a dispute without a third party (like a judge or arbitrator) making a binding decision on the parties involved. Instead of a formal judgment, the parties work towards their own resolution.
110
What does adjudicative mean?
Someone (judge, arbitrator) makes a formal, binding decision for you.
111
What are 5 non-adjudicative options for settling disputes?
1. Negotiation
2. Joint Settlement / Round Table Meetings
3. Meditation
4. Expert Evaluation
5. Conciliation
112
When do parties come in an agreement in the same room during a dispute and what of cases is this common in?
Round Table Meetings (Joint Settlement) - Personal Injury / Quantum Disputes
113
Do 2 parities in a dispute met in mediation?
No - generally a mediator goes between 2 rooms to seek common ground between parties
114
When is conciliation offered/required?
In employment tribunal's.
115
What is conciliation?
Conciliation is when two people or groups who are having a disagreement get help from a neutral person (called a conciliator) to try to solve the problem and reach an agreement.
The conciliator doesn’t take sides or make a final decision like a judge. Instead, they listen, talk to both sides, and suggest ways to solve the problem.
116
What does the Consumer Duty act ask firms to deliver?
Good Outcomes for retail customers
117
What 4 outcomes does the Consumer Duty ask insurers to consider?
1. Products and Services
2. Price & Value
3. Consumer Understanding
4. Consumer Support
118
When thinking about treating customer's fairly - should it be hard for consumers to make a claim.
No - there should be no barriers.
119
How should firms ensure that vulnerable customers still get good outcomes?
Through flexibility of products and services, ensuring staff are trained and assessing if they are meeting their needs.
120
What is the vulnerability taskforce?
An independent representative body with a purpose to promote understanding of vulnerabilities and encourage good practice.
121
What are the 4 main things does the ICOBS encourage an insurer to do in regards to claims handling?
1. Handle claims promptly and fairly
2. Provide reasonable guidance to the policyholder when making a claim
3. Do not unreasonably reject a claim
4. Settle claims promptly once terms are agreed
122
What does the Consumers Rights Act require claims handlers to do?
1. Perform a service within a reasonable time.
2. Make sure policy exclusions are identifiable and understandable to the average consumer (not hidden.)
3. Manage claims promptly (implied term)
