Chapter 7 Flashcards
(36 cards)
What is the largest expenditure for an insurance company?
The claims department
Who is a firms claims strategy worked out by and who implements it day to day?
Senior management and the claims manager
Who is responsible at a firm for ensuring the ESG is met?
A claims manager
What are the 2 main cost considerations for a claims manager?
- The costs of running a claims department
- The costs of the claims themselves
What responsibilities does a claims manager have towards staff?
- Ensuring they are trained / encouraging development
- Motivating staff
- Planning/Organising Tasks/Responsibilities
- Providing Leadership
What is leakage?
Avoidable overpayment in claims settlement e.g., not taking off a policy excess or exercising subrogation rights
What 2 important decisions does the claims manager have to make?
- The validity of the claim
- The size of payment
In the UK what is the % of leakage?
5% annually
What is an ex gratia payment?
An ex gratia payment is a discretionary payment made by an insurer where there is no legal or contractual obligation to pay under the policy terms. It’s often made as a goodwill gesture to maintain customer relations or resolve disputes.
What are 3 reasons an ex gratia payment might be made?
- Where the exclusion is a borderline one
- Where a hardship would have been created
- To preserve good relationships
Are ex gratia payments considered leakage?
It’s debatable as they have to be signed off by a claims managers so whether they are an avoidable claims overspend is hard to say.
What is soft leakage?
Soft leakage in insurance refers to subjective and difficult to quantify leakage e.g., ineffective negotiations.
What is hard leakage?
Hard leakage refers to clear, measurable, and preventable financial losses resulting from errors, overpayments, fraud, or failure to apply policy terms correctly during claims handling. Unlike soft leakage, hard leakage is usually easier to identify, quantify, and rectify. E.g., not removing the policy excess
What is the formula for calculating leakage?
Overpayment = what was paid - what should have been paid
What are 6 ways to prevent leakage?
- Senior Management Focus
- Employee Training
- Supervision of Staff
- Quality Management Checks
- IT Checks
- Culture
What does Bathurst consider to be the biggest cause of leakage?
Poorly trained staff
What is the mandatory solvency margin?
The solvency margin is the extra capital an insurer must prove it holds above its expected liabilities to ensure it can meet all policyholder claims, even under adverse conditions.
What is solvency II and does it still apply in UK?
Solvency II is an EU-wide regulatory framework that sets risk-based capital, governance, and reporting requirements for insurers to ensure they remain financially stable and able to pay claims.
Although the UK left the EU, Solvency II still largely applies in the UK.
Why is it necessary to monitor a companies finances?
- Regulators need to be satisfied it can satisfy it’s solvency margins
- For reporting and accounts
- To maintain control for things such as budgeting.
What 3 main things is the FCA responsible for?
- Ensuring the market operates with integrity
- Promoting Effective Competition
- Requiring firms put client wellbeing at the heart of how they run their businesses.
What is the FCA’s 3 pillar system?
- Firm systematic framework
- Event driven work
- Issues and products
What 2 categories does the FCA now use to define firms?
Fixed portfolio
Flexible portfolio
What does fixed portfolio mean?
An FCA Fixed Portfolio refers to a group of larger or higher-risk financial firms, including insurers, that receive dedicated, proactive supervision from a named FCA supervisor or team. These firms are considered to have a bigger potential impact on markets or consumers.
What does flexible portfolio mean?
A Flexible Portfolio consists of smaller or lower-risk firms that the FCA supervises using a more reactive, event-driven approach, rather than continuous, dedicated supervision. These firms typically receive periodic thematic communications, surveys, or reviews rather than having an assigned supervisor.
