Chapter 6

Question 1

What are 4 ways a claim can be settled?

Answer 1

1. Payment of money
2. Paying for repairs
3. Replacement
4. Reinstatement

Question 2

What is the most common way for an insurer to settle a claim?

Answer 2

Payment of money

Question 3

What is replacement in claims settlement and what is a cover where this settlement method is commonly used?

Answer 3

Replacing the broken or stolen item.

Glass insurance

Question 4

What is reinstatement and what is the cover where this method is commonly used?

Answer 4

Reinstatement is a claims settlement method where the insurer pays to repair or rebuild property to its original condition. It focuses on restoring the insured item rather than paying its cash value.

Buildings/Property Insurance

Question 5

In complex repairs, who will an insurer appoint?

Answer 5

Loss Adjusters

Question 6

Can insurers settle via reinstatement or replacement if not stated in the policy?

Answer 6

No

Question 7

Will insurers ever pay/settle someone other than the insured or third party in claims?

Answer 7

Yes - sometimes in buildings claims and mortgage provider may be paid. Doctors may also be paid in medical insurance or a hire company whose equipment was stolen but was in the care of the insured.

Question 8

What are surge events and what causes them?

Answer 8

Times when there are higher volumes of claims than normal.

Events like storms or ash cloud eruptions.

Question 9

What 2 main types of claims are surge events usually restricted to?

Answer 9

Property or travel.

Question 10

How can technology help deal with surge events?

Answer 10

Auto-instructions can be sent to surveyors and adjusters.

Question 11

What is another way an insurer might deal with a surge event apart from using technology/outsourcing?

Answer 11

Sending staff to a temporary local office near the event.

Question 12

Are insurers more ‘lax’ during a surge event?

Answer 12

In a way, yes - requesting documentation may be more difficult and insurers may make more allowances.

Question 13

What is actuarial reserving?

Answer 13

Reserving for the whole book (global reserving)

Question 14

What does it mean for data to be collated?

Answer 14

Put into similar groups

Question 15

What does it mean to project a claim?

Answer 15

Estimate the likely ultimate gross pay-out.

Question 16

What are the 3 steps of the Loss Development Factor Method?

Answer 16

1. Setting out the data in a table and using triangulation (comparing by accident, uw, policy year etc…)
2. Analysing the trend
3. Calculating the claims reserve

Question 17

How is a claims reserve for each accident year calculated?

Answer 17

Multiplying the cumulative claims to date for that year by the development factors for the number of years that remain undeveloped.

Question 18

Why to reserves need to be regularly reviewed?

Answer 18

To make sure they are still accurate e.g., new information hasn’t come to light that could increase the costs.

Question 19

What is factor or flag reserving?

Answer 19

Factor or flag reserving is a method insurers use to set claim reserves based on predefined factors or indicators (flags) linked to claim characteristics. These factors reflect historical data and expected costs, providing a quick, automated way to estimate reserves for similar claim types.

Question 20

What does repudiation mean?

Answer 20

Refusing to pay a claim.

Question 21

What are the 4 main reasons for repudiation?

Answer 21

1. Cover was never in force
2. Breach of material warranty
3. Breach of policy condition
4. Fraud

Question 22

What are 4 reasons a claim may only partly be met?

Answer 22

1. There is a limit of liability/sums insured
2. The average clause applied
3. Excess applied
4. Ex Gratia Payment

Question 23

What is recovery?

Answer 23

In insurance, recovery refers to the insurer reclaiming money from a third party responsible for the loss after paying the insured’s claim. This process, often called subrogation, helps reduce the insurer’s net loss. It ensures the party at fault bears the financial responsibility.

Question 24

What is subrogation?

Answer 24

Subrogation is the legal right of an insurer to pursue a third party responsible for a loss after compensating the insured. It allows the insurer to recover some or all of the claim amount paid. (the outlay)

Question 25

What is salvage?

Answer 25

The damage article that has been subject to a claim e.g., a written off car

Question 26

Who does salvage belong to on the settlement of the claim?

Answer 26

The insurer (the value of the salvage at least)

Question 27

What happens if the insured wishes to keep their salvage?

Answer 27

They may be allowed but generally the claims payment will be less the agreed value of the salvage

Question 28

What is the average clause and what type of insurance is it common in?

Answer 28

The average clause in insurance reduces the claim payout if the insured property is underinsured. It means the insurer pays only a proportion of the loss, based on the ratio of insured value to actual value. Property Insurance

Question 29

What is the formula for calculating the average clause?

Answer 29

Sums insured / Value of Goods x Loss

Question 30

A house is valued at £500,000 and insured for £400,000. If the insured suffers a £100,000 loss - what would insurers pay out?

Answer 30

£80,000

Question 31

What is the purpose of market agreements when dealing with claims?

Answer 31

1. Reduce costs 2. Speed up the process 3. Promote good relationships between insurers

Question 32

What are bi-lateral market agreements and what are the advantages?

Answer 32

Bilateral market agreements in insurance are formal arrangements between two insurers (or markets) to handle claims for shared risks. They often set rules for claims handling, settlements, or recoveries where both parties have an interest in the same risk or policy. They often have the same claims philosophy. It can speed things up as often they will connect their IT systems to make automatic payments and share data for shared claims.

Question 33

What is the purpose of ABI Contribution Agreement?

Answer 33

1. Avoid Adverse Publicity 2. Avoid Costly/Time Consuming Handling 3. Set out rules for contribution between parties (The purpose of the ABI Contribution Agreement is to provide a standardised framework for UK insurers to share claim costs fairly when multiple policies cover the same loss. It helps avoid disputes between insurers and ensures timely claim settlements for policyholders.)

Question 34

When is contribution not paid under ABI?

Answer 34

When the policy is a motor/theft policy and the amount is below £200.

Question 35

What is an excess?

Answer 35

The first amount of any claim, borne by the insured.

Question 36

What is a compulsory vs voluntary excess?

Answer 36

Compulsory excess is the fixed amount the insurer requires the policyholder to pay towards a claim. Voluntary excess is an additional amount the policyholder chooses to pay on top, often to reduce their premium.

Question 37

What is a deductible?

Answer 37

A large excess

Question 38

If there is contribution will a NCD be effected?

Answer 38

Not usually

Question 39

What is a franchise?

Answer 39

In insurance, a franchise is a type of policy threshold where the insurer pays the full amount of a claim only if the loss exceeds a specified limit or time. If the loss is below this limit or time, the insurer pays nothing.

Question 40

What is the MIB?

Answer 40

The MIB (Motor Insurers' Bureau) is a UK organisation that compensates victims of accidents caused by uninsured or untraced drivers. It helps ensure injured parties receive compensation even when the responsible driver has no insurance.

Question 41

How is the MIB funded?

Answer 41

The MIB is funded by a levy on all UK motor insurers, which is ultimately passed on to motorists through their insurance premiums. This ensures there’s a pool of money available to compensate victims of uninsured or untraced drivers.

Question 42

What are the 2 agreements within the MIB?

Answer 42

1. Untraced drivers agreement 2. Uninsured drivers agreement

Question 43

What does article 75 mean?

Answer 43

Article 75 is a provision under the Motor Insurers' Bureau (MIB) Agreements in the UK that determines when an insurer, whose policy is technically invalid (e.g., due to non-disclosure or misrepresentation), remains responsible for third-party claims. It applies when there’s no other insurer liable, making the insurer responsible for meeting certain third-party claims before the MIB steps in.

Question 44

Under article 75 can the insurer claim the money back from the MIB?

Answer 44

No but it can potentially from the policyholder

Question 45

What is the MIB limit of third party bodily injury under the uninsured driver agreement?

Answer 45

£1.2 million

Question 46

What 'loop hole' does the untraced drivers agreement fix?

Answer 46

The Untraced Drivers Agreement closes the loophole where victims of accidents caused by unidentified (untraced) drivers would otherwise receive no compensation. It ensures that even if the at-fault driver cannot be found (e.g., hit-and-run cases), the victim can still claim for injury and certain property damage through the MIB. e.g., a hit and run

Question 47

What is the excess for property damage on the MIB claims?

Answer 47

£400

Question 48

How must the victim present their case to the MIB and how many years do they have to do so?

Answer 48

In writing in 3 years of the accident for injury claims and 6 years for property damage claims