Here are two articles highlighting practices in the insurance claims process.
The first article listed the findings by the Financial Conducts Authority (FCA) on the handling of SMEs' insurance claims. Link as follow:
http://www.actuarialpost.co.uk/article/fca-review-insurance-claims-service-and-sme----039s-expectations-7900.htm
The second article reported the concerns by government task forces with the industry practices. Link as follow:
http://www.theactuary.com/news/2015/03/claims-management-companies-are-a-concern-for-insurance-task-force/
CLAIMS HANDLING FOR SME
The FCA assessed 25 firms (including 5 insurers, 10 intermediaries and 10 loss assessing firms) involved in the settlement and management of claims for SMEs and uncovered the following but not limited examples of poor practices in handling claims:-
1. Delays in visit by loss adjusters
2. Claimants are unclear on how to minimize disruption to their businesses
3. Lack of clarify over who are the parties involved in the claims handling and responsible
for the claims outcomes.
4. Lack of clarity over the claims processes.
UNDERINSURED
Apart from the claims management process, the FCA has also noted a significant number of cases with sum insured were inadequate to cover the losses. I will cover the risk and impact of under insuring in subsequent posts.
GOVERNMENT TASK FORCE
The task force was established by the government to tackle insurance fraud in the U.K. and has found the following areas of interest:-
1. Claims Management Companies
2. Specific demographics deliberately committing fraud
3. Effectiveness of fraud prevention/detection measures
4. Insurer's capabilities in handling fraud.
CLAIMS MANAGEMENT COMPANIES & DELIBERATE FRAUDSTERS
The task force noted the practice of "claims farming" where customers are encouraged by claims managers and intermediaries to make claims.
As for the policyholders, the task force noted there were trends in specific demographic of customers deliberately cheating the insurers.
INSURER'S CLAIMS MANAGEMENT PROCESS
The task force noted insurers' are preferring to settle fraudulent claims rather than seeking legal actions or involving the authorities to prevent any reputational risks. Insurers are also left in the dark in deterring fraud. With limited data available, serial offenders can and will repeat the same fraudulent process with multiple insurers.
VIEWS
There is always a perception that insurers are making a handsome profit year after year and it would not hurt the bottom line with a few fraud cases.
The weaknesses in the claims processes found by the FCA and government task are trade-offs of mitigation the key risks in claims management; conflict of interests and high volume of common claims.
To prevent any conflict of interest or incur too much costs in the claims management process, major claim cases are outsourced to adjusters where else straight through simple cases are outsourced to Management Care Organization which also improves T-A-T to a certain extend.
For errant and irresponsible adjusters, nothing much can the done except for the quarterly or yearly review of adjuster's performance while not forgetting that regulators have stipulated that adjusters are to be set on a rotation basis to prevent abuse or similar conflict of interests. This defeats the purpose of a carrot and stick policy with the adjusters.
The claims process can be improved with a standardization of adjuster's S-O-P according to their insurer's guideline and a strict timeline adherence and reporting of adjuster's status to the insurer which requires much deliberation from both parties prior to implementation.
On woes faced by SMEs in the claims process, their respective intermediaries (agents, brokers, direct account managers) should play an important role such as updates and follow ups to ensure continuous renewal of policies with the insurer.
