Chapter 3 - Claims Considerations and Administration

Question 1

Role of claims handler?

Answer 1

• deal with claims submitted quickly/fairly
• settle claims with minimum wastage/overpayment
• estimate cosy of claims
• decide if claims are genuine/fraud

Question 2

Reasons why customer service has become more of an issue?

Answer 2

Customer awareness - increased knowledge of rights and louder voice with social media

Expectation- high!

Competition- insurers struggle to compete with their providing better customer service (disruptors enter the marker using new tech etc which shakes things up)

Question 3

What is meant by service standards?

Answer 3

How a company deals with claims

Question 4

Benefits of good customer service?

Answer 4

• encourages customer loyalty with existing customers
• attracts new customers
• maintains/attracts good employees
• distinguishes company from its competitors
• improves profitability, productivity and working environment

Question 5

Parties to a claim:

Answer 5

First party - policyholder

Second party - insurer

Third party - anyone else involved in the claim

Question 6

Third parties have contractual relationship with insurer - true or false?

Answer 6

False - no contractual relationship

Question 7

Consequences of there not being a contractual relationship between the insurer and a potential third party?

Answer 7

• legally the third party must pursue their claim against the insured not the insurance company
• third parties expectations of claims service may be greater than the insured because they are hostile (I.e. victim in a motor accident)
• third party may be prone to exaggerate
• third party won’t be fully compensated if they’ve contributed to the accident
• third parties aren’t liable for any XS’s
• recovery of legal costs is common as third party is more likely to use a solicitor

Question 8

What is reserving?

Answer 8

Assessing level of funds required to meet current and future claims (it’s a key indicator of whether a company is solvent)

Question 9

What is reserving used to assess?

Answer 9

• overall financial performance
• how profitable different classes of business are
• adequacy of premium rates

Question 10

Who is involved in reserving reviews?

Answer 10

UW, actuaries and claims managers

Question 11

What is an outstanding claims reserve?

Answer 11

All the reserves allocated to individual claims added together and covers the cost of claims that have been incurred and reported to the insurer

Question 12

What is an incurred but not reported reserve?

Answer 12

Claims incurred by the insured but not yet reported to the insurer (basically the insurer obviously doesn’t know the exact cost of claims unreported so it uses stats on past claims etc to make an educated guess)

Question 13

What is an incurred but not enough reported reserve?

Answer 13

Covers any shortfalls with the outstanding claims reserves (could happen if amounts are understated or if the insurer has insufficient info when estimating adequate reserves)

Question 14

Name some other types of reserve

Answer 14

• equalisation (required by law, designed to smooth fluctuations in loss ratios)
• catastrophe (set up to cover large numbers of related losses I.e hurricane)
• unearned premium reserve and unexpired risk reserve
• reserve for claim handling expenses (office fees and loss adjuster fees)
• re-opened claims reserves - Common with PI claims

Question 15

Name the 4 main examples of insurance fraud

Answer 15

Inventing something that never took place
Exaggerating
Deliberately creating an insured event (paint on carpet)

Question 16

Who are the IFB and what do they do?

Answer 16

Insurance fraud bureau lead industry’s collective fight against fraud.

• Help insurers avoid financial consequences of fraud
• Support police in finding fraudsters
• Manage insurance fraud cheat line

Question 17

Who are the IFED?

Answer 17

Insurance fraud enforcement department (part of London police). Specialist unit in dealing with fraud.

Question 18

What databases are used to help detect fraud?

Answer 18

• insurance fraud register, industry wide and used to prevent fraud being committed
• IFB intelligence hub - intelligence about fraudsters can be shared in real time

Motor insurance anti-fraud and theft register- holds details of all total loss and theft claims so insurers can check if vehicle is being claimed for more than once

Motor insurance database - contains details of all UK registered vehicles, helps police identify uninsured drivers

CUE - shared database for personal lines claims from the previous 3 years, aims to prevent multiple claims on a number of policies held by 1 customer

Art loss register

Question 19

What are some common indicators of fraud?

Answer 19

• claims near inception
• frequent change of insurer
• request to add AD cover midway through policy
• financial difficulties come to light
• pressure to settle
• poor/missing documents

Question 20

How have insurers tried to combat fraud?

Answer 20

• completing claims forms over the phone (harder to lie)
• claims settlement via replacement rather than cash
• use of cognitive behaviour tools

Question 21

What are the consequences of fraud for the insurer, customer and fraudulent customer?

Answer 21

• the insurer - cost, light touch rep
• customers - increase in premiums for genuine customers
• fraud customers- temptation to carry on

Question 22

What did the case of Konstantinos Agapitos v. Ian Charles Agnew state?

Answer 22

Judge decided that not only would a fraudulent claim fail completely, but if a customer submitted a genuine claim and then exaggerated it this would also fail completely.

Question 23

What did the case of Versloot Dredging v HDI industrie state?

Answer 23

Overuled the Konstantinos case, stating that where the fraudulent act/omission makes no difference to the insurers liability it cannot reject the claim.

Question 24

What does the insurance act state around fraud?

Answer 24

If a fraudulent claim is made, the insurer can treat the contact as terminated from the time of the fraudulent act.

The insurer will remain liable for any prior legitimate claims before the fraudulent act, all claims after that will be invalid. The insurer is entitled to keep the premium.

Question 25

According to the insurance act, what is the difference between a fraudulent act and a fraudulent claim?

Answer 25

Fraudulent act = behaviour that makes the claim fraudulent Important distinction as insurer is entitle to terminate cover from the date of the fraudulent act (not discovery of it) which may be different from when the claim was submitted.

Question 26

How does the criminal justice and courts act impact PI claims?

Answer 26

Defendants cab request a claim to be struck out where part of a PI claim is fundamentally dishonest. (Basically where people exaggerate)

Question 27

Who are the 2 main regulators of claims handling?

Answer 27

PRA- part of bank of England, responsible for supervision of systematically important firms FCA - regulation of smaller firms such as insurance brokers and business conduct for all firms

Question 28

ICOBS considers it to be unreasonable for claims to be refused for?

Answer 28

Misrepresentation which is not a qualifying isrepresentation under CIDRA (consumers) Breach of warranty/condition unless the circumstances of the claim are connected with the breach (General Insurance contact) Only exception to this is fraud

Question 29

CIDRA

Answer 29

Before CIDRA the key insurance legislation was the marine insurance act which said all sellers/buyers of insurance must act with utmost good faith and disclose all material facts. CIDRA removed the burden off the customer to disclose all material facts and replaced this with the requirement to take reasonable care to not misrepresent. CIDRA categorised PH's as consumers or commercial customers. Act set out qualifying misrepresentations as either deliberate/reckless OR careless. If deliberate/reckless the insurer can avoid the contract. If careless there are 3 remedies based on what the insurer would have done had the consumer taken care.

Question 30

Insurance Act

Answer 30

Act amended insurance law on remedies for fraudulent claims, warranties and pre-contractual duty of disclosure. Act retains the duty of commercial customers to volunteer info to the insurer and introduced the concept of making fair presentation of risk to the insurer. Act sets out remedies for non disclosure, either deliberate/reckless OR innocent/negligent. Insurer can only repudiate a claim and avoid the policy entirely where they can show they wouldn't have written the policy at all (deliberate/reckless). If non-disclosure was innocent/negligent insurer must reflect what they would have done before taking on the contract. Under insurance act consequences of breach of warranty are less severe (under marine insurance a breach used to automatically terminate the contract). Now a breach suspends the insurers liability until the breach is remedied. Act prohibits basis of contract clauses and states insurers are not entitled to avoid a claim where the customers breach did not relate to the loss.

Question 31

What is the impact of the enterprise act?

Answer 31

Insurers must pay customers in reasonable time.

Question 32

What does DISP stand for?

Answer 32

Dispute resolution complaints sourcebook

Question 33

According to the FOS who are eligible complainants?

Answer 33

Consumer Micro enterprise (EU term) Charities (less than 6.5 million annual income) Trustees (less then 5 mill) Consumer buy to let consumer Smal business (annual turnover less than 6.5 million and fewer than 50 employees) Guarantors

Question 34

When can the complainant refer their complaint to the FOS?

Answer 34

Within 6 months of the firms FDL Within 6 years after the event complained about Within 3 years after the complainant knew they had cause for complaint

Question 35

FOS is not bound by law or legal precedent - true or false?

Answer 35

True

Question 36

What 2 ways can redress be awarded to a customer?

Answer 36

Money award - max amount is £355,000 Direction award - FOS tell firm what actions need to be taken to put things right

Question 37

How is the FOS funded?

Answer 37

General levy paid by all firms and a case fee (fee we pay when a customer takes their complaint to the FOS)

Question 38

What is an arbitration clause?

Answer 38

Clause insurers include which means a customer can refer their dispute if they feel the claim settlement is unjust. Insurers prefer it as it's less public than court Can have more than one arbitrator but usually just 1 - arbitrator has Sam's powers as court to order someone to do something

Question 39

What is an alternative dispute resolution? (Third party disputes)

Answer 39

Another way to settle a dispute without litigation. Used most commonly for third party disputes before legal action. 2 different options - adjudicative options or non-adjudicative options.

Question 40

What adjudicative options are there for resolving disputes?

Answer 40

An independent TP considers both sides of the dispute and makes a decesion. Parties choose the process but have less control of the outcome. Examples include: - Arbitration - parties need to agree the terms of the agreement in writing, less flexible approach - Adjudication - legal requirement for disputes relating to construction contracts, a determination is made by an imdependent person within 28 days - Expert determination - suitable for technical disputes such as valuation of shares, decision is legally binding on all parties

Question 41

What non-adjudicative options are there for resolving disputes?

Answer 41

Parties keep control of the process and the outcome of the resolution. Examples include: - negotiation - joint settlement/round table meetings - common with PI claims or quantum disputes - mediation - parties don't meet but the dispute is heard by the mediator who goes between the parties - Evaluation - used to provide an early review on a case, this is voluntary and not binding on either party - conciliation - often used in employment cases and is compulsory for employment tribunal's

Question 42

What are the 6 outcomes firms must deliver on to be TCF?

Answer 42

1 - customers have confidence firms support TCF 2 - products/services sold are designed to meet the needs of customers 3 - firms give customers clear advice and are informed 4 - advice is suitable and takes into account customers circumstances 5 - customers expectations are managed 6 - customers aren't faced with unreasonable post-sale barriers