CLAIMS

Introduction:

"Claims" constitute a very important area and functions of an insurance company. In fact, Claims may
be regarded as the primary service of the insurance to the insuring public.

Meaning of 'Claim'

Claim is a request to be reimbursed (or compensated) filed by the insured and addressed to the insurer.

A claim can be made without an 'insured loss event' happening (an 'insured loss event' is an occurrence
which is covered under the terms of the policy). In such a case, the claim would be invalid. Similarly,
an insured loss event can occur without a claim being made. Where, for example, the insured is
unaware that cover extends to the particular peril, there is a potentially valid claim but since the claim is
not presented, the insured is not reimbursed.

Meaning of 'Loss'

A loss is the occurrence of an insured event, such as fire, which results in a financial disadvantage to
the insured.

Proper settlement of claims requires a sound knowledge of law, principles and practices governing
insurance contracts and in particular, a thorough knowledge of the terms and conditions of the policies,
extensions etc.

Besides, prompt and fair settlement of claims will be regarded as a hallmark of good service to the
insuring public. It requires great deal of professionalism whilst dealing with claims. It is equally
important that claims negotiations should be on the basis of patience, tact and courtesy with stamp of
professionalism all over.

THE CLAIM PROCESS

Though we will deal with various procedures in the preparation of Claim, it would be helpful to review
the various stages in the claim process at this point. It should be noted that the actual procedure for
handling claims varies according to the class of business, type of cover, the amount of the claim, and
whether it is a personal or commercial risk insured.

The various steps involved in the claims process are :

1. Event giving rise to the claim - As stated above this may or may not be an insured loss event.
2. Claim Notification - This is the reporting of the claim by the insured to the insurer. Ideally, the
claim details will be sufficient to meet the needs of the insurer and all appropriate
documentation will be enclosed. Often, this is not the case. Hence it is the duty of the insurer to

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CLAIMS HANDLING GUIDELINES
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 give a clear picture of the documentation required to the insured as soon as possible, so that
delay can be avoided. As far as the insured is concerned, it is his prime duty to submit all
documents requested by the insurer in time.
3. Claims Review: This involves the analysis of claims by the insurer in the light of such things
as :
(ii) the appropriateness of the amount claimed
(iii) the proposal form
(iv) the exact terms of the policy
(v) Coverage etc.
4. Response to the insured: The initial response from the insurer to the insured may be only an
acknowledgement or request for further information. Depending upon this further information,
the insurer must then convey his decision in respect of the claim which can be one of the three
choices:
(i) Payment i.e. acceptance of the claim in broad terms
(ii) 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.
(iii) Rejection i.e. liability is not accepted by the insurer.
5. Claim Investigation: In many cases, the insurer will not be in a position to make a claim
decision before the full facts surrounding the claim are available. In order to establish such
facts, it must be necessary to instruct an internal claims inspector to undertake further
investigations or to appoint loss adjusters who undertake an independent investigation into the
claim and write a report of their findings to the insurer.
6. Claim Negotiation: With the full facts of the case, the insurer may decide to negotiate the
claim with the insured, if they feel that the amount of loss is lesser than that originally claimed.
7. Claim Settlement: This stage may quickly follow the response to the insured in case of simple
claims which are immediately accepted by the insurer. Alternatively, claims settlement may be
years after the claim is originally made in the case of large and disputed claims. The insured has
an option to request for 'On Account' payment, if the liability has been accepted by the insurer.
8. Claim Recoveries: Following payment of claim, it is often the case that the insurer will be able
to recover part of the outlay from other sources viz. third parties or Reinsurers. This is done by
the insurers normally after the settlement of the claim.

Claims Procedure:

All insurance policies contain conditions regarding the prompt notification of claims. It is
imperative that claims be reported immediately.

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 All incidents which are likely to be the subject of a claim must be reported to the Insurer
immediately, and the appropriate claim form must be fully completed and submitted with all
other details and supporting documents the soonest possible. Failure to comply with this
condition could severely prejudice the Insured’s claim.

The insured should always bear in mind the following:

 Never admit liability for any accident.

 Minimize the extent of any loss or damage and always act as if he is uninsured.

 Keep damaged property and/or salvage. If Insured has had a burglary, he should take
photographs before anything is moved/repaired especially of broken windows, doors,
security gates or burglar bars, i.e. damage which has to be repaired immediately. He
should always remember that a condition of his policy is that burglary/theft must be
accompanied by forcible and violent entry. A photograph has settled many a possible
dispute.

 Thefts and motor accidents must be reported to the police. Injuries as a result of motor
vehicle accidents must be reported to the police. Insured must inform Insurer of the
name, address and contact details of anyone else involved in the claim, such as the
other party or any witness in the case of an accident. As much detail as possible needs
to be given, not just, as often happens, a telephone number. In all claims – to save the
delays of going back and forth – Insured should give much information as he can when
making a claim. Assets must be described in as much detail as possible.

 Insured should note and fulfill the terms and conditions of the insurance contract upon
which claims will be made.

 Insurers have the option to repair, replace, reinstate or pay in cash and have the right to
asses and adjust the loss. Insured should not repair or replace lost or damaged property
without obtaining authority from Insurer.

Preparation of claims:

PRELIMINARY NOTICE OF LOSS:

It is most essential that early notification of the loss is received by the insurers. The time limits
within which the notice of loss shall be given by the insured are provided in the policy
conditions.

Some policies provide for immediate or forthwith notification whereas others require notice to
be given as early as practicable after the loss. The purpose of the immediate notice conditions is
to allow the insurer to investigate a loss at its early stages. It would also enable the insurer to
suggest measures to minimize the loss and take steps to protect the salvage.

Undue delay in notification would adversely affect the insurer's position. Therefore, non-
compliance with this condition will relieve the insurer of liability if it materially affects the
insurer.

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CLAIMS HANDLING GUIDELINES
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 In Burglary insurance, this condition imposes an additional duty on the insured to give
immediate notice to the Police Authorities.

LOSS MINIMISATION:

It is the duty of the insured to observe good faith during the currency of the policy, especially
when a loss occurs.

The duty of good faith means that, at all times, the insured has to act as if he is uninsured.
When a loss occurs, it is the legal duty of the insured to do his utmost to minimize the loss.
However, for the sake of emphasis and to bring the legal position (as per common law) to the
attention of the insured, conditions are incorporated in policies to place the duty on the insured
to take steps to protect the property from further damage and minimize the loss.

Other Procedural aspects:

On receipt of the intimation of loss or damage insurers check if:

 The policy is in force on the date of occurrence of the loss or damage.
 The loss or damage is a peril insured by the policy.
 The subject matter affected by the loss is the same as is insured under the policy.
 Notice of loss has been received without undue delay.

The insurers would have their own system of registering the claim and intimating the re-
insurers and co-insurers, if any. There is also a practice to elicit the information regarding the
loss from the insured vide a claim form, which is normally given to the insured by the insurer,
for completion and return. The contents of the claim form vary with each class of insurance. In
general, the claim form is designed to elicit full information regarding the circumstances of the
loss, such as the date of loss, the time, cause and extent of loss. But in some countries, this
practice is adopted only for select classes of insurance viz. workmen compensation, personal
accident etc.

INVESTIGATION AND ASSESSMENT:

On receipt of the intimation of claim (or claim form, if issued to the insured) the insurers would
decide about the investigation and assessment of the loss. If the loss is relatively small, the
inspection/investigation and assessment of loss is generally done by Staff Surveyors of the
insurers themselves. However, larger and complicated claims are entrusted to independent
professional surveyors. This practice is based on the principle that since both the insurers and
insured are interested parties, the unprejudiced opinion of an independent professional person
should be acceptable to both the parties as well as the court of law in the event of any dispute.

The insured is required to co-operate with the Surveyors in all respects and submit the
documents/information, required by him. He should also be allowed to freely inspect the
circumstances of the loss. It has however to be noted that inspection of the loss by the Surveyor
doesn't mean that the loss has been admitted by the insurer.

CLAIM DOCUMENTS:

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 Apart from the Claim Form (if issued to the insured) and Survey Report, the insurer would
require certain documents to substantiate the claim. The insurers are expected to advise the
insured about their requirements as soon as the loss occurs, so that delay in settlement can be
avoided.

For example for fire claims the following documents are essential (not elaborate)
 Report from the Fire Brigade.
 Final Action on the case from the concerned authority.
 Invoices/Quotations etc.
 Copies of books of accounts.
For Burglary Claims:
 Final Action on the case from the concerned authority.
 Invoices.
 These documents provide different evidences to the insurers.

ARBITRATION:

The procedure in arbitration is generally along the following lines. The dispute is submitted to
the decision of a single arbitrator to be appointed by the parties, or in the event of any
disagreement between them upon a single arbitrator, to the decision of two arbitrators each
appointed by the parties. These two arbitrators appoint umpire, who presides at the meetings.
The procedure during these meetings resembles that of a court of law. Each party states his
case, if necessary with the help of a counsel and witnesses are examined. If the two arbitrators
do not agree on a decision, the matter is submitted before the umpire, who makes his award.
Costs are awarded at the discretion of the arbitrator/arbitrators or umpire making the award.

LIMITATION:
There will be a condition in most of the policies with a 'limitation' condition. As per this
condition, the Insurers would not be liable for any loss or damage after the expiration of certain
period from the happening of the loss, unless the claim is subject to pending action or
arbitration.

In the absence of this condition, it would be possible for the insured to re-open claims after a
considerable lapse of time whereas it is not possible for insurers to keep their accounts and
records open for an indefinite period.

SETTLEMENT:

The claim is processed by the insurers on the basis of various documents and if found to be in
order, the payment is made either by crediting the account of the insured/claimant or by issuing
a check in their favor.

However, settlement is generally made only by obtaining a proper discharge receipt in advance.

RECOVERY:

Recoveries may be in the form of salvage or from third parties under subrogation rights.
Recoveries in respect of the salvage realized or realizable are to be treated as agreed upon by

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 the Surveyors, Insurers and Insured. Similarly, if the insured has any subrogate rights against
any third parties, the same is required to be transferred to the insurers. For this purpose, a letter
of subrogation duly stamped is obtained from the insured, before effecting the settlement.

REINSTATEMENT OF SUM INSURED:

Generally the sum insured under fire policy stands reduced to the extent of loss paid by the
insurers. This can however be reinstated to the original limit by payment of additional premium
on pro-rata basis or as agreed by Insurers.

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CLAIMS HANDLING GUIDELINES
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