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IF4 Insurance Claims Handling Process

Unit 7 Management of Expenses


ROLE OF THE CLAIMS MANAGER

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Claims Management

if appropriate,
a quality
management
clear claims system; an efficient
procedures, use of
including information
reserving technology
practices; (IT); and

the use of
a corporate
Claims outsourcing,
claims Management where
philosophy;
appropriate.

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Strategy
A claims manager should implement the day to day strategy set by the senior
management.
This includes
Budgeting and management of Resources
Organization of the Departmental structure
logical and smooth work-flow
Effective I.T systems
Ensure quality Claims Procedures
Maintain relationships with their reinsurers
Be up to date with cash management strategy
Have a senior status
are aware of current underwriting practice and reserving methodology.

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Cost
Managing the cost of the claims themselves, which also embraces the average
speed of payment and recovery from reinsurers.
Monitoring and controlling the internal cost of running the claims department
IT
staff salaries and benefits
the cost of any outsourcing; and

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Service
At all times the claims manager must ensure that policyholders are treated fairly.
The manager should ensure that the claims department has the competence to
identify valid and invalid claims by analysing the terms and conditions of the policy together
with the claim information;
ensure that accurate and timely reserves are allocated to claims;
effect the payment of valid claims in a timely manner;
make all possible recoveries as quickly as possible; and
provide advice to internal customers (such as underwriters) regarding developments
affecting claims issues, such as case law, statute etc.

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Personnel
The claims manager also needs to:
recruit, train, motivate and retain intelligent and competent staff;
delegate responsibilities within the department such as claims handling and settling
authorisation;
effectively manage and motivate staff by:
planning tasks and responsibilities;
prioritising and assisting in respect of technical queries;
providing leadership through decision-making and pro-active working methods;
controlling and monitoring progress;
co-ordinating, training and improving.

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LEAKAGE

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Leakage
Soft Leakage CLAIMS LEAKAGE
This is subjective and difficult to quantify, e.g. failure to
negotiate an (adequate) adjustment for wear and tear
Hard Leakage Avoidable overspend in
settlement.
This is relatively easy to identify, e.g. failure to deduct the
policy excess.
Overpayment (or leakage) = What was actually paid -
What should have been paid

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To identify overpayment, a detailed review of the handling of a claim through its
various stages is required. What may such a review consider?

Whether the cause of loss falls within the policy scope;


Checking the date of loss and notification of loss
Whether there is sufficient proof of the extent of the loss;
Correctness of calculations including, depreciation, excess and average (if
applicable).
Whether recoveries from subrogation and contribution have been pursued
vigorously.
Fees paid are reasonable and not inflated

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Prevention

Quality
Supervision
Management

Skills of
claims I.T Checks
personnel

Focus of Prevention
senior of Claims Culture
management Leakage

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Monitoring Overall Financial Performance
It is imperative that a company's financial performance is monitored regularly.
Then appropriate action can be taken if necessary and the interests of related
parties are protected at all times. The monitoring of claims outstanding and IBNR
are an integral part of this.
Financial Conduct Authority (FCA) regulation
Claims data should be able to withstand regulatory monitoring and ensure that no threat to
the companys solvency exists through under-reserving or overpayments.
Annual reports and accounts
Claims reserves and IBNRs are stated in the liability section of the balance sheet.
Profit may be over-reported if claims are under-reserved
Management control
plan (i.e. budget)
monitor; and
control

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Claims Reserves
Outstanding claims reserve
the aggregation of individual claim reserves, covering the cost of claims that have been
incurred and reported to the insurer.
Incurred but not reported (IBNR) reserve
the claim has been incurred by the insured but has not yet been reported to the insurer who
consequently knows nothing about it.
The amount to be reserved to take account of this situation is calculated using various
statistical techniques and actuarial models based on past experience and market
intelligence and developments.
Incurred but not enough reported (IBNER) reserve
Covers shortfalls in provisions for outstanding claims reserves.
E.g. amounts reported are understated, or where the insurer has insufficient information on
which to decide what would be adequate reserves.

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Other Reserves
Equalisation These are required by law and are designed to smooth fluctuations in loss ratios (i.e.
Reserves the ratio of premiums to claims) for certain classes of business

Catastrophe These are set up to cover a large number of related individual losses arising from one
Reserves event (e.g., hurricane

Unearned Premium The unearned premium reserve is that element of the premium for which insurance
Reserve and coverage has not yet been provided. For example, if only six months of a policy period
Unexpired Risk has expired at year end, only half the premium has been 'earned'.
Reserve An unexpired risk reserve is only needed where the unearned premium reserve may be
considered insufficient to cover the insurers liabilities.

Provision for claims To cover the anticipated future costs of settling claims; it includes direct costs (e.u loss
handling expenses adjusters' fees) and indirect costs (e.g. office expenses

Re-opened Claims This occurs where the claim is closed but then the underlying circumstances of the
reserve claimant deteriorate. This often occurs with personal injury claims, which have to be re-
opened later with a suitable reserve

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