Claims Practice. Handling and Settlement

Transcription

1 Claims Practice Handling and Settlement

2 Topic Objectives Contents 5. Handling and Settlement Describe the effective negotiation and settlement of claims Explain the key differences in handling the claims of consumer and commercial policyholders Explain the special requirements for handling international claims Describe common indicators of fraudulent claims Explain the importance of recoveries, including subrogation and reinsurance recoveries Explain the particular requirements in handling reinsurance claims Negotiation and settlement of claims Handling the claims of consumer and commercial policyholders Handling international claims Fraudulent claims Subrogation and recoveries form other parties

3 Can it be settled now? Immediate investigations Efficient diary system is vital Actions planned Excellent communication with customer all interested parties is vital Timely and appropriate Cost effective Active management Correct decisions Customer needs to know what is happening and when it is happening Proportionate use of resources (time, money, etc.) Tell customer whether claim is covered as soon as possible

4 Claims involving foreign jurisdictions Is there a Code of Practice to follow? Are there regulatory requirement? What rules apply to claims handling? Do they include set timescales? Are in-house systems suitable? Do handlers and/or loss adjusters need specific training? Are the claims being outsourced? Do the outsourcers know and comply with local laws and regulations Language and cultural issues?

5 US Fair Claims Practice Each State has own regulations Likely to include: Misrepresentation Promptness acknowledgement and communication Investigation, processing and settlement Fair and equitable handling and settlement Declining claims carry out reasonable enquiries first give customer reasonable explanation

6 California Fair Claims Settlement Practice Regulations (CFCSPR) Aims: Minimum Standard for Claims Handling Promote good faith Promote prompt, efficient and equitable settlement Discourage and monitor false and fraudulent claims

7 Requirements California Fair Claims Settlement Practice Regulations (CFCSPR) Thorough, fair and objective investigation Acknowledge notice of claim within 15 days* unless settled in that time Begin investigation of claim within 15 days* of notice Fully respond to all claimant communication within 15 days* Accept or deny claim within 40 days* giving reasons for denial of claim or any part of it Claims Handlers must receive training on CFCSPR Insurer must not make Unreasonably low settlement offers * Calendar days

8 Four types of fraud (Association of British Insurers) Underwriting fraud Claims fraud Deliberate misrepresentation or non-disclosure Loss or incident is fictional Staged incidents Deliberate loss, damage or injury Misrepresentati on or exaggeration of loss or personal injury There was a genuine loss that is misrepresented or exaggerated.

9 Arson Well known method of defrauding insurers Fraud needs to be identified as soon as possible People trained to look out for it include: Claims handlers Loss adjusters Fire brigades Forensic scientists

10 Motor Staged accidents Contrived accidents Staged thefts Arson Exaggeration Misrepresentation

11 Fraud Prevention Deterrence to would be fraudsters Fighting all fraudulent claims no matter how small Pursuing prosecutions Report cases to police ABI and Association of Chief of Police Officers (ACPO) guidelines apply Data sharing via databases

12 Fraud and Utmost Good Faith Manifest Shipping Co v Uni-Polaris Shipping Co 2001 (The Star Sea) Duty of good faith exists throughout the policy period and this includes claims The logic is simple. The fraudulent insured must not be allowed to think: if the fraud is successful then I will gain. If it is unsuccessful then I will lose nothing Britton v Royal Insurance Company 1866 The contract of insurance is one of perfect good faith on both sides, and it is most important that such good faith should be maintained. It is common practice to insert in fore policies conditions that they should be void in the event of a fraudulent claim Such a condition is only in accord with legal principle

13 Fraud clauses now found in policies Example We will not make any payment if: You or anyone acting on your behalf mislead us in any way Any claim or any part of it is fraudulent, false or exaggerated..

14 Subrogation the right of the insurer who has indemnified an insured, in respect of a particular loss, to recover all or part of the claim payment. (CII P85 October 2013 study text: page 5/18) Does not apply to benefit policies

15 Castellein v Preston 1883 (Insured recovers money twice for the same loss) Fire damages a house whilst a sale is going through It happened after exchange of contracts but before completion The sale completes as planned and the buyer pays the full asking price The insurer also paid the seller 330 for the fire damage This left the seller with a profit of 330 The insurer claimed that the seller had to pay them back 330 out of the money received from the buyer (who had already exercised the subrogation right) The court agreed with this argument, stating that the insured should not profit from the loss.

16 Subrogation v Abandonment/Salvage Subrogation Insurer has the right to claim against a third party Insurer cannot bring an action in its own name (but Riot is an exception) Insurer is not allowed to make a profit An automatic right that flows from the principle of indemnity Abandonment/Salvage Insurer only has rights in respect of the subject matter of the insurance Salvage is the property of the insurer Insurer is allowed to make a profit on abandoned property Not an automatic right as the insurer does not have to accept the abandoned property

17 Two or more indemnity policies Also: There are no Non-contribution clauses to apply Each Policy Liable How contribution arises Common Interest Common Subject Matter Common Peril

18 Do you remember the King and Queen Granaries Case? (North British and Mercantile v Liverpool & London & Globe) Merchants put grain belonging to Barnett into a warehouse Both parties had insured the grain Each had different insurable interests Court held that contribution did not apply because there was no common insurable interest See also these two cases in the textbook: Scottish Amicable Heritable Securities Association v Northern Assurance 1883 Glasgow Provident Investment Society v Westminster Fire Office 1887 Subsequent market agreement that insurers would contribute where different interests apply

19 Basis of Contribution Two Options Sum insured method Applies when: Two or more policies are not subject to average The property insured is identical The loss is settled in proportion to the sum insured Independent Liability Method Applies when: Inner policy limits apply Claim is subject to average Liability claim The basis of this contribution is the amount each insurer would have to pay if it was the only insurer covering the loss

20 Sum Insured Method Policy Sum Insured Total Sum Insured of All Policies Insurer A has 200,000 sum Insured Insurer B has 300,000 sum insured X Loss Insurer A Pays 10,000 Insurer B Pays 15,000 Claim is made for 25,000 What does each insurer pay?

21 Independent Liability Method Insurer s Independent Liability Total Independent Liability of all Insurers Insurer A has sum insured of 5000 and single article limit of 1500 Insurer B sum insured of 3000 and single article limit of A claim is made for an item worth 2,000. What does each insurer pay? X Loss Insurer A pays 1200 Insurer B pays 800 See Commercial Union v Hayden 1977 This method also applies to Liability Insurance

22 Market Agreements Prevent unnecessary disputes Save on administration costs Examples: Subsidence Domestic subsidence agreeement Personal Effects Contribution Agreement Motor Reduction in Paper Exchange (RIPE) Liability claims Insurers have agreed not to pursue claims against negligent fellow employees (see Lister v Romford Ice and Cold Storage Ltd)

23 ABI Domestic Subsidence Agreement Damage happens over many years Potentially involves a number of insurers Agreement sets out which insurer(s) responsible If claim made within first 8 weeks of policy, previous insurer deals with it in full Claim made after 8 weeks and before one year are shared between current and previous insurer New Insurer Handles it Claim more than 1 year after new policy is full responsibility of new insurer

24 Motor Accidents/Thefts No contribution Specified Items No contribution unless specified under two policies ABI Personal effects contribution agreement All other situations Contribution applies No Claims Discount Not affected if reimbursement made to another insurer

25 Marine Insurance Actual total loss Subject matter destroyed, no longer exists or is irretrievably lost Constructive total loss Subject matter is not destroyed but insured is deprived of their possession of it It is unlikely that they can recover it The cost of recovering it is likely to exceed its value Abandonment is automatic Insured must give notice of abandonment

26 Reinsurance claims Original claim must be: Settled because of a liability or probable liability under the original policy Handled properly and professionally Supported by case law