Claims Settlement

Question 1

Sometimes an insurer can:

Answer 1

recover the money it has paid out in settlement of a claim from a third party.

Question 2

insurers make agreements between themselves to :

Answer 2

smooth the process of claims settlement and to reduce its cost.

Question 3

When a claim has been notified, and assuming that all the parties have carried out their respective duties, all that remains is for the claim to be :

Answer 3

Settled.

Question 4

There are four ways in which the claim can be settled. These are:

Answer 4

payment of money;
paying for repairs;
replacement; and
reinstatement.

Question 5

The payment of money directly to the insured is:

Answer 5

the easiest and most common form of settlement.

Question 6

The payment of money directly to the insured is the easiest and most common form of settlement, as it is simply a cash payment to the insured covering the amount of their claim.

Answer 6

TRUE

Question 7

The insurer can also pay for repairs, this is very common with motor vehicle repairs (often
by using authorised repairers).

Answer 7

TRUE

Question 8

An estimate would usually be provided to the insurer which would then authorise repairs.

Answer 8

TRUE

Question 9

If the repairs are extensive, an engineer may inspect the vehicle first. The invoice would be sent directly:

Answer 9

to the insurer for settlement (minus any policy excess).

Question 10

Insurers can also arrange to replace damaged or lost goods. This is often the case with:

Answer 10

glass insurance for instance,

as glaziers frequently offer discounts to insurers.

Question 11

Replacement can be used as a form of indemnity in the case of suspected fraud.

Answer 11

TRUE

Question 12

Why offering a replacement for a stolen or damaged item would discourage fraud?

Answer 12

If someone was fraudulently claiming for a stolen item in order to raise cashyit would be frustrating for them to receive a replacement, which they would have to sell in order to get the money.

Question 13

The final option available to an insurer is:

Answer 13

to reinstate that which has been damaged by the

insured peril.

Question 14

in relation to reinstatement, extensive damage to or destruction of a building, insurers can take control of the repair and/or rebuilding themselves. This course of action is:

Answer 14

Seldom used as it carries onerous obligations for the insurer .

Question 15

If the sum insured is exceeded,

the insurer is responsible for paying the full amount in relation to reinstating a building caused by an insured peril.

Answer 15

TRUE.

Question 16

Replacement and reinstatement only apply if stated in the policy. Therefore, if they are not offered by the policy as settlement options they do not apply and the insured? :

Answer 16

the insured only has a right to financial compensation.

Question 17

An explanation must be provided to

the insured of the usual way in which such claims are settled.

Answer 17

True

Question 18

Other than the authorised repairers, circumstances in which an insurer will pay someone other than the insured?

Answer 18

paying a hire purchase company the amount still outstanding for a lost item with the balance of the value paid to the insured;

paying a mortgage company following severe damage to a property;

paying a doctor under a private medical insurance policy.

Question 19

Other than those examples….
(of circumstances in which an insurer will pay someone other than the insured),
what else?

Answer 19

Liability claims.

Claims paid by insurer to third party personal injury.

Question 20

Any form of claims must be explained to the insured, before payment is made in order for the Insurer?? :

Answer 20

Insurer to comply with the FCA principle of the fair treatment of customers!

Question 21

What is the indemnity for the insured when -at-fault liability claim to a third party?

Answer 21

Insured indemnified by not having to pay out of their own pocket.

Question 22

Insurers are facing increasing numbers of what are known as ‘surge events’. This is when?

Answer 22

an insured event causes a higher volume of claims than normal, placing greater demand on the insurer’s claims resources.

Question 23

When insured makes claim, Insurer claims resources are in high demand, an example would be :

Answer 23

Surge events

Question 24

Surge events is the type of insurance policy that …

Answer 24

is restricted to property claims, either residential or commercial,
but could also affect other classes of insurance…

Question 25

Can you think of a type of insurance peril which could be affected by a surge in claims?

Answer 25

This could be as a result of : a significant storm, a period of prolonged rain leading to flooding or an exceptionally cold spell leading to increased claims for burst pipes

Question 26

Can you think of another type of insurance which could be affected by a surge in claims?

Answer 26

Travel Insurance

Question 27

Insurers need to be ready for a surge event as it is not easy to predict when it might occur.

Answer 27

TRUE

Question 28

What do insurers need to do to be able to handle claims, that they would not usually deal with?

Answer 28

Staff need to be trained and claim notification processes need to be adapted to cope with the number of calls, without impacting the validation of claims.

Question 29

Surge events are often localised and insurers will interrogate their databases in times of surge and proactively contact customers in the affected area to establish if claims need to be made..

Answer 29

True

Question 30

Insurers also send staff to local temporary offices near the affected area, to make the process easier for the customer.

Answer 30

True

Question 31

In times of surge, requesting documentation/quotes for repair is sometimes difficult.

Answer 31

TRUE

Question 32

In these situations, customer descriptions or photographs may be sufficient to validate the loss

Answer 32

TRUE

Question 33

something that would be less acceptable in normal circumstances?

Answer 33

TRUE!

Question 34

In a surge event, it is important for an insurer to priorities customer needs and manage the expectations of those:

Answer 34

With lower priority claims.

Question 35

There are a number of circumstances in which an insurer will refuse to pay a claim. This is known as :

Answer 35

repudiation.

Question 36

What circumstances can you think of where an insurer will refuse to pay a claim?

Answer 36

Breach of material warranty, policy condition, cover never in force, fraud.

Question 37

Fraud needs to be???

Answer 37

Proven .

Question 38

In relation to proving fraud, all policy benefits will be forfeited from the date of the fraudulent act and:

Answer 38

The insurer may keep the premium.

Question 39

If Cover was never in force?

Answer 39

A claim occurred outside the policy period.

Question 40

A person claimed for damage to the insured’s own car under a third party only motor policy, is binding on the insurer to state that?:

Answer 40

To state that cover was never in force under this type of policy.

Question 41

If a theft occurs while a burglar alarm has not been set, and there is a warranty states that it will be set (the emphasis here being on ‘materiality’), then the insured:

Answer 41

Is under the Breach of a material warranty.

Question 42

A claim was reported so late that the insurers were prejudiced in respect of any recovery rights, this is an example of:

Answer 42

Breach of a policy condition

Question 43

If the policy condition is precedent?

Answer 43

Insurers can avoid policy liability, regardless as to whether insurers were prejudiced by late notification or not.

Question 44

Can you think of examples where insurers will make a payment of less than a full indemnity?

Answer 44

Sum insured or limit of liability, Application of average, excess or deductible and an Ex-gratia payment.

Question 45

If a loss is greater than this sum or limit, the insured’s recovery is limited to that amount, this is an example of:

Answer 45

Sum insured or limit of liability

Question 46

The application of an average clause tends to be the case of underinsurance on a property policy. Meaning?

Answer 46

Any claim will be paid in proportion to the sum insured, and insured is charged by reduced premium.

Question 47

First amounts payable by an insured, resulting in a less-than-full indemnity is an example of:

Answer 47

The application of a compulsory excess or deductible.

Question 48

When must an insurer provide an explanation as to why there is a difference between the amount claimed, and the settlement figure?

Answer 48

In any cases involving partially met claims of less than full indemnity.

Question 49

What is an ex gratia payment?

Answer 49

An ex gratia payment, which is a claim payment made by an insurer as a gesture of goodwill, even though there is no obligation to pay.

Question 50

Ex gratia payments may result in a loss being only partially met.

Answer 50

TRUE.

Question 51

An insurance contract is one of:

Answer 51

indemnity.

Question 52

What's the intention of recovery?

Answer 52

The intention is to put the insured in the same financial position after a loss as they were before it occurred.

Question 53

If an insured wants to recover their loss from another source, but fails to do so, why?

Answer 53

The claim has already been settled by their insurer.

Question 54

The insurer, has subrogation rights, meaning it can pursue any right of action available to the insured, which may reduce the insurer’s loss.

Answer 54

TRUE !

Question 55

When the insurer ‘stands in the shoes’ of its insured and avails itself of the rights and remedies open to the insure, is an example of:

Answer 55

Subrogation

Question 56

In subrogation the insurer can pursue a responsible third party to recover from them any payments it has made.

Answer 56

True

Question 57

Usually a condition in the insurance policy giving the insurer rights before any payment is made, but the insurer cannot actually recover until it has made payment. This is an example of :

Answer 57

Subrogation

Question 58

If a responsible third party has insurance covering their liability, their insurers may make payment, but any right of recovery will be directly against :

Answer 58

the third party.

Question 59

Recovery of payments is most clearly seen with :

Answer 59

motor insurance

Question 60

Insurers will often have whole departments dedicated to recovering monies from negligent third parties or will:

Answer 60

outsource this role to a dedicated supplier.

Question 61

In an insurance claims context, what does the term ‘salvage’ refer to?

Answer 61

Salvage is the damaged article that has been the subject of a claim.

Question 62

An important consideration for the claims department on settling a claim is whether a damaged item (the salvage) has any residual value.

Answer 62

TRUE

Question 63

Most insurers will have a condition in their policy wordings that on settlement of a claim, the salvage will become the insurer’s property.

Answer 63

TRUE

Question 64

The insured has a right to abandon the property to the insurer:

Answer 64

FALSE,,, | The insured has NO right to abandon the property to the insurer

Question 65

it is the value of the salvage to which the insurer is entitled.

Answer 65

True

Question 66

When a motor insurance claim has been settled on a total loss basis, the insurers usually:

Answer 66

keep the salvage .

Question 67

Who do insurers sell the salvage through and why?

Answer 67

Through specialist salvage companies and to minimise costs.

Question 68

Alternatively, the insured may be allowed to retain the salvage, and the claim payment will :

Answer 68

be reduced by whatever amount has been agreed to be the value of the salvage.

Question 69

Salvage with property insurance, an example would be .

Answer 69

If a carpet is damaged by paint the insured may want to keep the carpet and cut it down to use it in a smaller room. The insurer would then negotiate with the insured to pay a sum to retain the salvage (or reduce the payment to the insured by that amount).

Question 70

With property insurance, the amount payable by an insurer is limited to the sum insured (a value declared by the insured at the start of the policy).

Answer 70

True

Question 71

Who declares the value of the sum insured limits at the start of the policy at in property insurance?

Answer 71

Insured

Question 72

Once the sum insured value figure is known, who determines the insured’s contribution to the common pool (the premium)???

Answer 72

Insurer

Question 73

What happens when this declared figure is less than the actual figure at risk?

Answer 73

It would mean that the insured had contributed less to the premium pool than they should have done, which would be unfair.

Question 74

In relation to a declared value bein less than the value of the risk, most property insurances incorporate:

Answer 74

an average clause.

Question 75

What is another term to define average clause?

Answer 75

A pro rata condition of average.

Question 76

What does the Pro rata condition of average state???

Answer 76

That the insured is acting as their own insurer for the difference between the actual value and the declared value.

Question 77

Who will bear any appropriate proportion of any losses, when in pro rata condition of average?

Answer 77

The insured

Question 78

When does the insured act as their own insurer?

Answer 78

In pro rata condition of average, for the difference between the actual value and the declared value.

Question 79

CHECK OUT EXAMPLE 6.2 & 6.3

Answer 79

About Average clause and sum insured and limits of liability....

Question 80

What is an excess?

Answer 80

An excess is the first amount of each and every claim which is not covered by the policy.

Question 81

When the claim is settled the amount of the excess is taken away from the payment made to the insured.

Answer 81

True

Question 82

For example, a loss of £500 on a policy with a £100 excess would result in the policyholder receiving £400 in settlement of the claim.

Answer 82

True

Question 83

Excesses can be either compulsory or | voluntary.

Answer 83

True

Question 84

A compulsory excess is one that is applied by the insurer as a term of the policy.

Answer 84

True

Question 85

What does a compulsory excess reflect?

Answer 85

It reflects the fact that a higher risk might apply.

Question 86

In motor insurance, a compulsory excess may be applied to:

Answer 86

a young or inexperienced driver or to a named driver who had a poor driving record (accidents or motoring convictions)

Question 87

Excesses may be as low as £100, BUT can be greater than £1,000, depending on the level of risk being proposed and the insurer’s willingness to accept it.

Answer 87

True

Question 88

Who accepts on the level of risk being proposed in relation to excess?

Answer 88

The insurer.

Question 89

In home insurance, a compulsory excess would apply to different perils, for example in relation to claims for escape of water or subsidence.

Answer 89

True

Question 90

They may be used as a disincentive for customers to make small claims. Such excesses in home insurance may be a few hundred pounds.

Answer 90

True

Question 91

But ,,, which can cost many thousands of pounds to rectify, the excess is usually at least £1,000, in the case of?.

Answer 91

in the case of subsidence claims,

Question 92

When can voluntary excess be applied?

Answer 92

To a policy at the policyholder’s request.

Question 93

In return for accepting the first proportion of any claim, the policyholder receives ??

Answer 93

The policyholder receives a discounted premium for voluntary excess.

Question 94

Voluntary excess is more common in motor insurance than home.

Answer 94

True

Question 95

It is possible to have a voluntary excess in any class of business.

Answer 95

True

Question 96

Who agrees on the voluntary excess and the discount in return?

Answer 96

the insurer and policyholder to agree what the excess would be and what discount would apply in return.

Question 97

It is possible to have both compulsory and voluntary excesses applying to THE SAME risk and policy?

Answer 97

TRUE! | It is possible to have both compulsory and voluntary excesses applying to the same risk and policy

Question 98

In liability policies, such as motor insurance, where the policyholder is not responsible for the damage caused, it is possible for them to recover their policy excess from the responsible party. What would this process be deemed as?

Answer 98

an uninsured loss.

Question 99

It is possible to purchase legal expenses insurance to help recover such losses,

Answer 99

True

Question 100

In such a scenario (where the policyholder is not responsible for the damage caused, and wants to recover their policy excess from the responsible third party) the services of an:

Answer 100

uninsured loss recovery service would be employed.

Question 101

Purchasing legal expenses insurance in liability insurance, to help recover losses from responsible third parties would also employ the services of :

Answer 101

Uninsured loss recovery service.

Question 102

What is a deductible??

Answer 102

A large excess (though the term can have a more specialised application in certain circumstances, which are beyond the scope of this course).

Question 103

An insurer may wish to restrict their cover to only large claims and be its own insurer for smaller claims.

Answer 103

Usually with a large commercial concern.

Question 104

When would a deductible apply?

Answer 104

to the first amount of each and every claim.

Question 105

SEE EXAMPLE 6.5

Answer 105

DEDUCTIBLES RELATED

Question 106

What is a Franchise?

Answer 106

a threshold that is used to decide when a claim is to be paid. Once the claim exceeds the level of the franchise, the claim is paid in full.

Question 107

An example, If a policy had a franchise of £500, and a claim occurred for £400, the insured would receive nothing. If the claim was for £600,

Answer 107

the insured would receive the full £600.

Question 108

A time franchise may also be applied which is un terms of hours or days, usually in which policies?

Answer 108

personal accident policies.

Question 109

personal accident policies usually applied in?

Answer 109

Franchises

Question 110

Franchises are not as common as

Answer 110

deductibles and excesses.

Question 111

who is largely confined to commercial insurances???

Answer 111

true (Franchises are not as common as deductibles and excesses, and are largely confined to commercial insurances)