This post discusses insurance claims and the management of insurance claims.

INSURANCE CONTRACT

A contract is a legally binding agreement between two or more parties whereby rights are acquired by one or more parties to act or forbearances on the part of the other. Insurance is a contract between two parties, the insured and the insurer, whereby the insurer undertakes to make good a loss of the insured caused by specified perils during the contract period in exchange for a consideration known as the premium. 

Insurance is the pooling of fortuitous losses by transferring such risks to insurers, who agree to indemnify insureds for such losses, provide other pecuniary benefits on their occurrence, or render services connected with the risk. Individuals, households, and businesses can purchase insurance policies to manage risk exposures. The insurer assesses all risks proposed to ensure that each insured pays a commensurate premium, and that appropriate terms and conditions are included in the insurance policy. Hence, insurance may be viewed as the custodian or treasurer of the fund.

BENEFITS OF INSURANCE

Insurers undertake or promise to indemnify or compensate insureds in the event of a loss covered by the insurance policy in exchange for premium payment. Insurers are expected to make good the insured’s loss based on the term and conditions of the insurance contract. It is, therefore, essential for insurers to have a sound claims management system.  

Benefits of insurance include: 

1) Payment of loss – Provides compensation or indemnity as may be necessary,

2) Reduction of uncertainty by covering possible loss exposures,

3) Ensures compliance with the legal requirement – statutory and contractual requirements,

4) Promotes loss control activity, 

5) Efficient use of insured’s financial resources after premium payment, and 

6) Reduces social burden through compensation of insured accident victims.

INSURANCE CLAIMS

An insurance claim is a formal request by an insurance policyholder to an insurance company to indemnify or compensate him after a loss based on the insurance contract terms and conditions. The insurance company will review the claim to ensure its validity and then pay the insured or requesting party (on behalf of the insured) subject to the terms and conditions of the policy. Insurers know an excellent claims-handling system will deliver tangible results for commercial and personal lines. 

Hence, to keep pace with the changing, challenging market environment and competition, insurers should:

1. Invest in transforming their in-house core claims legacy systems.
2. Cultivating data analytic capabilities.
3. Improving customer relationships across all touchpoints.
   

THE IMPORTANCE OF CLAIMS MANAGEMENT IN THE INSURANCE SECTOR

The importance of good insurance claim management includes: 

1) Efficient claims management is vital to the success of both large and small firms in the insurance industry,  

2) Settlement of claims, 

3) Detection of fraud, 

4) Lowering of costs, and 

5) Avoidance of litigation.

GOALS OF INSURANCE CLAIMS FUNCTION

The essence of an insurance claim’s function is to ensure:

1) Compliance with contractual promises and supporting the insurer’s financial goals.

2) The satisfaction of the insurer’s obligations to the insured as specified in the insurance policy.

3) Managing claim functions expenses, establishing spending policies, using appropriately priced providers and services.

4) Claims activity monitoring and measurement of the effectiveness of claim department activities. 

5) Claims element analysis: This involves individual analysis for claim indemnity payments, claim expense payments, deductibles set off from claim payments, separately collected deductibles, and subrogation collections.

FACTORS INFLUENCING INSURERS’ CLAIMS’ ENVIRONMENT

Here are the factors influencing insurers claims environment:

1) Regulatory requirements include status, regulation, insight, foresight, adaptability, and agility.

2) Technological advancements to enhance customers satisfaction and loyalty. 

3) Delivering on developments such as real-time email alerts and other technologically enabled service upgrades is part and parcel of today’s marketplace across the industry spectrum. 

4) Promptness in handling and settlement of claims.

DIMENSIONS OF CLAIMS’ TRANSFORMATION

The claims system should be sound. Hence, it is essential for insurers who need a more robust claim system to transform their claims processing systems. 

A successful claims system has five primary dimensions:

1. Customer experience

2. Operating model

3. Integrated management

4. Advanced technology

5. Information and analytics

BENEFITS OF A GOOD CLAIMS HANDLING PROCESS

The benefits of a successful claims handling process and system include: 

1. Offering superior claims and policy service to enhance customer retention. 

2. Distinguish the company in the marketplace to improve brand recognition.

3. Boost efficiency and cost savings by analysing internal and external information to reduce costs. 

4. Improve productivity and continuous fuel improvement to enhance its competitive capability. 

5. Retain talented and experienced claims staff to maintain a dynamic, talented, trained, and well-rewarded workforce for superior customer service.

OBSTACLES TO THE TRANSFORMATION OF CLAIMS’ HANDLING SYSTEM

Here are some obstacles to the transformation of an insurer claims system:

1. Legacy data and analytics challenges: This obstacle can be overcome by engaging sophisticated and well-thought-out analytics.

2. Budgetary constraints: This obstacle can be overcome by considering the return on investment when making decisions.

3. Functional silos: This obstacle can be overcome by using integrated processes, well-orchestrated data models, and integrated systems. 

4. Lack of aligned, properly trained talent: This obstacle may be overcome by providing necessary training and deploying change-focused communications.

CONSEQUENCES OF AN UNTRANSFORMED CLAIMS SYSTEM

Considering the need to transform the claims-handling process, insurers that fail to change their claims-handling operations may suffer the following consequences:

1) Outdated systems and operating models.

2) Ineffective competitive strength. 

3) Inability to leverage fast-changing data and technology developments and the opportunities they support. 

4) The result – Poor customer relationships and inability to ensure customer loyalty.

STEPS OF THE INSURANCE CLAIMS PROCESS

The insurance claim process typically involves six main stages. The policyholder must collect relevant documents (including receipts, original invoices, and proof of ownership), photos and accounts of the event or damage and familiarise himself with the insurance claim process steps.

Here are the six basic steps of an insurance claims process.

Step 1: Claim notification – Report the insurance claim to the insurance company

Step 2: Claim investigation

Step 3: Review of policy to determine the insurance coverage

Step 4: Evaluation of the damage

Step 5: Repair and replacement

Step 6: Final payment

INSURANCE DISPUTE

An insurance dispute arises when an insurance company and the policyholder disagree on the terms of a settlement. The insurance company may only accept the claim outright, offer less than the claimant believes their damages are worth or delay payout without a valid explanation. A dispute can happen for many reasons, but claims denials and slow payouts are the most common.

Insurance claims’ disputes can be categorised into two, namely:

1. Dispute on the point of law or liability. This entails disagreement between the insured and the insurance company on the meaning and interpretation of the insurance policy. This dispute centres on disagreement on the acceptance of liability by the insurance company based on the terms and conditions of the insurance contract as contained in the insurance policy documents.

2. Dispute on the quantum or amount of liability. This entails disagreement between the insured and the insurance company on the claim amount payable by the insurer.

HOW TO RESOLVE INSURANCE DISPUTES

Ways of resolving insurance disputes include:

1. Negotiation,

2. Litigation,

3. Arbitration, and

4. Alternative dispute resolution (ADR).

PRINCIPLES AND CONDITIONS OF INSURANCE CLAIMS PROCESSING

Insurance claims should be handled, and processed based on the policy terms and conditions. Some general principles and policy clauses apply to insurance claims. Most of the applicable principles and clauses are contained in the insurance policy, which embodies the contract terms and conditions. 

Here are the general principles and clauses applicable to insurance claims, include:

1. Notification condition

2. Insurable interest

3. Indemnity

4. Contribution

5. Subrogation

6. Reasonable care clause

7. Fraud clause

8. Cooperation condition

9. Admission of liability condition

10. Arbitration condition

See the full video on Insurance Claims: https://youtu.be/wbrVsy9o1Mw