AMM 101 CLAIMS MANAGEMENT

Assignment 1
Short Question
1. Claims Process involve 8 Procedures, Identify and Explain 3 of the said procedures?(10 marks)

The actual procedure for handling claims varies according to the class of business, the type of
cover, the amount of the claim, and whether it is a personal or commercial risk insured. Three of
the procedures are claims notification, claims review and response to claimant.
Claim notification
This is the initial reporting where the claimant filling in the claim form supplied by the insurer in
order to notify the claim to the insurer. Ideally, the claim details will be sufficient to meet the needs
of the insurer and all appropriate documentation, such as receipts, will be enclosed. Often,
however the policyholder omits one or more piece of necessary information, resulting in delays to
the processing of the claim.
The purpose of the claims condition is to enable the insurer to take steps to investigate claims (or
occurrences which might give rise to claims) in order to minimise its exposure under the policy. It
enables loss adjusters and lawyers to be appointed and generally allows the circumstances to be
investigated so that detailed evidence is not lost. In addition, it gives insurers the opportunity of
investigating possible recoveries from third parties (the third party refers to anyone other than the
insured who is involved in a loss event, which may or may not result in a claim). In general, it is
important for the policyholder to notify claims quickly to avoid the insurer missing the tight
deadlines involved in the code for the conduct of civil litigation, known as the Civil Procedure
Rules (i.e. the rules governing civil litigation). Under the Rules it is essential that the insured is made
aware of their responsibility to forward letters of claim from third parties to the insurers and to notify
the insurers of any loss incidents which may result in a claim.
Within the direct writing sector of the personal lines market, claims are notified by the insured
either ringing the insurer or completing a claim form online, and providing answers to a prescribed
series of questions. A completed claim form may be sent to the insured for confirmation and
signature, but increasingly just a record of the communication is kept as substantiation of the
information provided.
Claim review
This involves the analysis of the claim by the insurer in the light of such things as:

the appropriateness of the amounts claimed;

the proposal form, e.g. whether the claim contradicts earlier statements;
the exact terms of the policy, which are often open to interpretation;
legal requirements;
economic considerations, such as the internal cost of pursuing extra documentation or of
entering into long correspondence with the insured compared to paying a small claim;
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alternatively, the financial effect of paying a targe claim may be compared to the likely
cost of disputing it, including investigation and litigation costs;
market practice; and
their corporate claims philosophy
As can be seen, some factors may conflict with each other, such as the exact terms of the
contract and economic considerations; legal requirements and market practice. Claim review is
therefore a key stage in the process.
Under the Civil Procedure Rules, there is an emphasis upon the time and resources required at the
initial stages of a claim because a large amount of claim detail is provided upon claim
notification. If there is a possibility, however remote, of a claim going to court, the insurer will need
to solve policy issues quickly and be seen to be pro-active in responding to and investigating the
claim in order to avoid sanctions being imposed by the court, such as costs, for not complying
with the pre-action protocols.
Response to claimant
The initial response from the insurer to the insured may be only an acknowledgement or a request
for further information. Depending upon this further information the insurer must then convey their
'claim decision" which can be one of three choices:
payment, i.e. acceptance of the claim in broad terms;
negotiation, i.e. the offer of a lower amount than that claimed or an offer to enter into
negotiations with the insured with no amount initially named. In this situation liability is
accepted by the insurer and the quantum of the claim is the only point in dispute; or
rejection, i.e. liability is not accepted by the insurer. In the case of both negotiation and
rejection the full reasons for the decision should be stated. This allows the insured to
understand the decision and to challenge it if the arguments are flawed. These are the
areas where insurance disputes can arise.
The insurer's response to the claimant (i.e. the insured or a third party) is largely governed by the
Civil Procedure Rules. In essence there are standard procedures set out in documents known as
pre-action protocols (i.e. a pre-defined standard of the conduct expected of the parties and the
kind of information which must be exchanged prior to formal court proceedings being
commenced). A pre-action practice direction provides that for cases not covered by the current
protocols, the court will expect the parties to all disputes to 'act reasonably in exchanging
information and documents' and in trying to avoid court proceedings. In other words, even when
there is no directly applicable pre-action protocol, the parties are expected to abide by the spirit
of the existing pre-action protocols.
For our purposes this means that in responding to the claimant, the insurer must either:

follow the exact procedures (and timetables) laid down in the relevant pre-action protocol
for the particular type of claim; or
'act reasonably' in respect of all other types of claim.

The court's interpretation of acting 'reasonably' is likely to be based upon similar lines to the preaction protocols already issued, subject to the court's discretionary powers. In this case, we can
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take the personal injury pre-action protocol as a template. This requires the insurer (or the insured)
to convey their claim decision within three months of the date of the defendant's
acknowledgement of a letter of claim from the claimant. This response can be either:

to admit liability (i.e. accept the claim in broad terms); or

to deny liability, giving reasons.

In addition, the insurer must provide standard disclosure of relevant documents which substantiate
their reasons for denying the claim. There is also the possibility of the insurer making an offer of
settlement to the claimant (referred to as a Part 36 offer under the rules). However, for such an
offer to be effective, it will be necessary to have examined the claim in detail so the offer is high
enough to interest the claimant in accepting it. A claimant is also able to make an offer of
settlement at anytime, and the defendant should not reject a reasonable offer since to do so
may lead to onerous costs orders being made by the court in the event of a trial.
In summary, early claim decisions are required in respect of the coverage of the claim. In many
cases, senior claims handlers have to be involved due to the level of settlement authority
required. In considering their response to the claimant, claims handlers must be able to identify
those cases which are worth fighting.
2. Explain the difference between Claims Management and Claims Handling?
The key distinction is between 'management' and 'handling'. Claims management encompasses
the following ideas:
the carrying out of the entire claims process from notification to review of performance, as
set out above;
including within the review of performance the monitoring of claims expenses, legal costs,
and claim settlements;
for self-insurers (i.e. those organisations who insure themselves rather than seeking insurance
coverage offered by insurers) the review of performance would include attempting to
minimise future losses in order to reduce claims costs (i.e. a pro-active risk management
programme).
We can therefore define claims management as:
The carrying out of the entire claims process with a particular emphasis upon the monitoring and
control of claims costs.
The term was originally used in reference to claims that are self-insured but it is now used by
insurance and reinsurance companies alike to indicate a control of the claims process, rather
than a routine processing of claim advices.
The phrase 'claims handling' was the traditional term for insurance companies handling the
various stages of the claim process. Critically, however, it encompasses none of the risk
management issues and instead emphasises the day-to-day functions of claim review, claim
investigation and claim negotiation - arguably the most problematical elements of claims work.
We can define claims handling as:

The original term for handling the claims process with emphasis upon claim review, investigation
and negotiation, but excluding risk management issues.
As can be seen, the process of claims management encompasses that of claims handling.
3. Briefly explain the Role of the Claims Department.(10 marks)
The claims department is one of the key departments of an insurance company. Other
departments include underwriting, accounting, and investment. The claims department has many
roles:
Strategic role - to provide the insurance company with a high quality of service so that it
can differentiate itself from its competitors (or even to outsource this function if it is
unattainable in-house:
Cost-monitoring role - to ensure that any claim payments are contained within the
parameters of the contractual relationship as far as possible.
Service - to meet or exceed customers' expectations regarding the quality of service, with
particular regard to the speed, manner and economic efficiency of the service.
Management - to meet or exceed the standards of service set and to operate within
budget.

4. Explain briefly which standard of proof is required for a typical insurance claim. (10 marks)
Onus and standard of proof required for a typical insurance claim is the insured must prove event
occurred on the balance of probabilities and it is covered by operative clause in the policy.
The courts frequently recite the principle that the insured has the burden of proving coverage
under the policy and the insurer has the burden of proving exclusions from coverage. However, in
those instances where the precise cause of a loss is unknown and intermingles between covered
and excluded perils, the line where the insureds burden of proof is met and where the burden
accordingly shifts to the insurer to prove an exclusion from coverage can be murky indeed.
With this basis of a burden of proof on the insured to demonstrate the damage incurred is
covered by their policy, this is not the case for policy exclusions. In regards to exclusions, it is the
insurance company's burden to prove that the exclusion is applicable to the incident in question.
A classic example is where the policyholder has lost the receipt for a stolen item and produces a
forged receipt to try to substantiate the claim. The loss is genuine but the policyholder has lied in
the course of making the claim, thereby breaching the duty to act "in utmost good faith". When
the lie is discovered, the insurer generally repudiate the claim meaning that it is not obliged to pay
the claim.
5. Identify which party carried the burden of proof in showing: (10 marks)
a) A claim event occurred
It is a basic principle in insurance law that the insured in making a claim must prove that the
insured event has taken place and in indemnity policies, he must also prove that the
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occurrence of the insured event has resulted in loss or damage to him. The standard of
proof is on the balance of probabilities.
b) An exclusion to a peril applied
The burden then shifts to the insurer if the insurer alleges that the exceptions, breach of
conditions or fraud apply. The insurer could only repudiate liability if it is proven that the
insured had breached the terms of the policy or an exclusion to a peril applied. The
insurers liability to compensate a claimant may still remain if the insurer is unable to
substantiate their allegation.
6. There are internal and external benefits brought upon in having a corporate claims philosophy.
Explain in brief the said Benefit. (10 marks)
Benefits of a corporate claims philosophy
The benefits can be divided between:

external benefits, i.e. benefits to external customers;

internal benefits, i.e. benefits accruing within the organisation (internal

customers).
External benefits are:strategic
With the use of a well-designed and focused claims philosophy an organisation is able to
position itself among the best in its field as regards its claims-processing efficiency,
friendliness and professionalism. This is important for insurers and reinsurers alike. As many
insurance products are sold on the strength of their claims service and as each customer
contact is part of the marketing strategy, a claims philosophy which offers the customer a
very high-quality service will form part of the overall marketing strategy.

Cost
When the characteristics of claims which are likely to receive prompt payment are
clearly stated, the claimant is then in a position to frame the claim in the required context.
This means that the third-party claimant is more likely to produce documentary evidence of
any valid claim as required by the Civil Procedure Rules and less likely to make speculative
claims. The claims process should be shorter and disputes, which are costly for both parties,
should be less common. In reinsurance, it is often a lack of claim detail which delays
payment of an otherwise valid claim. Traditionally, little detail was provided but, with the
worsening of results and emergence of latent claims, reinsurance claims departments have
been addressing this problem and filtering out those claims presentations which lack
evidence.

service
Customers of an organisation with a written claims philosophy know exactly what they
can expect. The promise is defined. In addition, they can refer to the claims philosophy to
compare it with the actual service delivered. If one of the key promises (such as speed of
service) is clearly not fulfilled, then they may have a legitimate complaint. This is a difficult

area since the promises tend to be broad in nature rather than specific, as the intention of
the claims philosophy is not to define the standards of performance but the approach to
claims in general.
Personnel
Many people are involved in the delivery of any insurance or reinsurance product. By
use of a written claims philosophy, the organisation is able to offer a consistent claims
stance since the general approach will be defined in writing, understood, and applied by
each member of the claims team.The internal benefits of a corporate claims philosophy
are probably even more important than the external ones. Again, we can categorise them
as:

Strategic
The process of producing a corporate claims philosophy involves analysing each stage
of the claims process within the organisation and making an assessment of the nature,
speed and efficiency of each element. The value of this exercise alone is enormous. It
encourages change and, in the event of a higher quality of service being aimed for, forces
improvements in the claims operation. This will also ensure that the claims philosophy is
defined in a manner that complements the overall company objectives.

There is also a sharper management focus following the issue of a written claims
philosophy. Breaking the single process of reviewing and paying claims down into separate
components enables the impact of each upon the overall standard of quality to be seen
clearly.
Furthermore, despite the fact that a claims philosophy is not intended as a standard-setter,
it does define aims and thus implicitly assists in setting management goals and objectives.
In addition, the prestige of a claims department within an organisation can be increased
with the use of a written claims philosophy. In a management model where the claims
department has internal customers, such as the underwriting department, the
establishment of high-quality service ideals will serve to define the focus of its work and the
level of commitment of its members.

cost

The clear statement of the characteristics of claims that will be promptly paid is
intended, as a side-effect, to discourage speculative claims which are wholly without
substantiation. Again, the claims process should be quicker and contain fewer disputes if
such claims can be avoided. This saves claims costs, administration costs and litigation
costs.
In reinsurance, it makes sense to set out clearly the required level of claims detail, since
there is often a wide spectrum of market practice regarding certain claim issues (such as
aggregation) which arises from the use of non-standard contract wordings, the varying
amount of resources given to the claim function and the international geographical
locations of the reinsurers involved.

service

As indicated above, with the publication of a claims philosophy an organisation is likely

to set specific internal goals and objectives. For example, if the external goal is a 'prompt'
response to the insured, this can be defined as five working days so that all
correspondence should be responded to within this time. Thus the claims philosophy will
provide a focus for the claims department's work and set broad standards internally.

personnel

The claims personnel will be aware of what is expected of them and will work towards
achieving the targets set. Rather than each member attempting to provide a 'good'
service defined by their personal criteria, a more specifically defined quality of service can
be applied department-wide. This will aid staff identity within the corporation.
The staff will be able to take pride in the provision of an efficient service. This will increase
staff motivation, as will staff being trained to a higher standard than before in order to
reach the new service standards.

Long Question
1. Are insurance and reinsurance claims handling the same?(20 marks)
The essential difference between insurance claims handling and reinsurance claims handling is
that reinsurance claims handling involves negotiation between two insurance specialists in a
business environment where a continuing business relationship may exist. Insurance claims
handling, in comparison, often involves an insurance specialist negotiating with a member of the
public or commercial customer where a continued relationship is unlikely if the claim settlement
fails to meet the insured's expectations. However, in the case of large insurance claims, insurance
specialists or lawyers are likely to represent both the insured and the insurer.
Similarly, where large and/or problematic reinsurance claims are involved, specialists such as
reinsurance consultants are likely to be engaged.
2. What are the process involve in developing an insurance claims philosophy? (20 marks)
In developing a claims philosophy, an insurance company must analyse each stage of the claims
process as currently offered by the organisation. It must then define minimum and maximum (i.e.
achievable) future targets for the quality of the claims service (in terms of its nature, speed and
efficiency) and the key characteristics of valid claims. Bearing in mind the Civil Procedure Rules
the following should be considered:

Deadlines
conduct of the parties; and
information to be exchanged between the parties.

Taking the example of the claims stage of 'claim review', the above will require an assessment of:
the current service offered (e.g. claims take on average 15 days to review);
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 minimum service (e.g. claims must be reviewed within 18 days in order to reply to a letter of
claim within 21 days); and
maximum service (e.g. claims could realistically be reviewed in 10 days based upon
assumptions being made with regard to personnel, resources etc.).
In essence, this requires an assessment of:

the current service offered (in terms of nature, speed, efficiency and key characteristics of
valid claims); and
ideal service (in the same terms as above), for example, that all correspondence should be
answered within four days. This should be a realistic and achievable ideal. It is analysed in
order to set the outer parameters of the future service to be offered.

In order to assess its current service, the insurer may require the services of a market research
company to provide the external customer's view of the quality of the service. In addition, other
users of the claims department's services, as listed above, may be asked confidentially to advise
on:
current weaknesses;
current strengths;
possible improvements.
The maximum service could, for example, read:
Claim review
Nature

- pro-active;
- professional;
- consider 'strict' policy terms;
- consider civil procedure conduct.
Speed
- ten days;
- consider Civil Procedure Rules deadlines.
Efficiency
- ensure full reasons provided by claimant;
- consider the information requirements of the Civil Procedure Rules (full
documentation to be provided in respect of information, statements and
records);
- pay valid claims immediately.
Other stages in the claims process would be developed on a similar basis.
Future standard of service
Following this combined assessment, the insurance company would now be in a position to
decide upon the future standard of service to be offered. The standard of service has
consequences for, and is a part of, the strategic business objectives discussed in the next section.
It also forms part of the overall marketing strategy.
Critically, the views of each of the various users of the claims philosophy must be taken into
account in its development. For an insurance company, the key users will be external customers,
most likely predominantly the general public. For these reasons the wording of the document must
be easily understandable.
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Whereas an internal document may set out the specifics (for example, targets measured by
number of days) the external claims philosophy should be phrased in general terms with use of
such words as, for example, 'quick', 'speedy' and 'reliable' to indicate the type of service
expected.