Management Or Handling ? A Look at insurance claims

Claims Management Or Claims Handling? Issues & Concerns

The claims settlement and underwriting functions are the two most important aspect of the functioning of an insurance company. On taking out an insurance contract, the customer’s anticipations are:

I. Acceptable insurance coverage, which does not leave them high and dry in time of

Need, at the right pricing.

ii.   Timely    delivery    of   ambiguous    free   policy documents with relevant endorsements /

Warranties / conditions / guidelines.

iii. Should a claim happen, proper communication and quick settlement to his contentment

Here, we shall be concentrating on (iii)- occurrence of a claim, as (i) and (ii) relate to the underwriting function. It should however be noted that proper general insurance underwriting of the risk does facilitate claim settlement. Contrasting life insurance, where all policies necessarily result in claims – either maturity or death. In general insurance not all policies result in claim. It is approximated that around 15% policies in general insurance result in claims. Claim settlements in general insurance thus have their own distinctiveness and therefore require proper handling. It should be noted that how 15% of policy holders are attended to is of great importance since the services being rendered will determine the attitude of the customers. How the service being rendered is perceived by the customer needs to be kept in mind. Do we have a mechanism to find out the same?

Claims Handling

Insurance companies in Kenya and indeed much of

Africa  have  previously  been  handling  the  claims rather than managing them. Typically claims handling involves –

i. As soon as a claim is reported, the insurance company checks as to whether the cover was in force at the time of loss and whether the peril is covered under the policy

ii. A surveyor or adjuster is appointed to do the assessment and submits the report.

iii. Insurance company examines the report, calls for relevant supporting documents.

iv. On receipt of survey report and documents, the same are examined. The claim file is processed and settlement is offered.

In  this  way  claims handling is  thus more process oriented and does not pay adequate attention to the monitoring and  claims cost  aspect  as  also  to  the service parameters.

Claims management aspects to consider

With cut-throat competition in the local market and indeed much of Africa, the insurance companies have

to go much beyond the handling of claims. The following aspects need to be kept in mind.

I. General insurance is a market driven service industry, the customer has to be kept satisfied. With so many options available, a customer once lost is most likely a loss forever. Claim settlement can be used as a marketing tool. In addition bringing in a new customer is more costly than retaining the existing ones.

II. In a largely de-tariffed market such as ours, pricing will be the key factor. Proper claims management & quick settlement at optimal cost will help keep the

Price competitive.

III. A dissatisfied customer is a bad publicity. It has all the   potential   to   damage   the   reputation  of   the company.  A  majority  of  the  customers’  complaint

Relate to claims. It should be the exertion of any prudent insurance company to ensure that such complaints do not occur in the first place and in some cases  if  they  do  occur  it  is  attended  promptly,

Efficiently and transparently.

IV. IRA guidelines on ‘claims management’ effected in July 2012 stipulate certain obligation on the part of insurance  company  including time  limit  for  certain

aspects of the claim process. This is a regulatory requirement and insurance company personnel at every level must understand its implication.

V. Delayed claim settlement generally result in higher

Claims cost. Claims cost is a very important factor to profitability.

Why do delays take place in claim settlement?

Nobody will buy the excuse that the claimant is not forthcoming with documents and other requirements for settlement of claim. Is it because of the delay in submission of survey reports? If so, who is responsible for this? Are we undertaking necessary follow up steps for timely submission of report? The surveyors are duty bound as per IRA regulations to submit report within a stipulated time. Are there service level agreements with the service providers?. Even after submission of report and completion of other requirements how much time does it take to finally issue settlement cheque and its delivery to the claimant? Do we have a system to monitor it? How about our accounts department people meeting the claimants   or   intermediaries   for   a   change   to appreciate “the sensitivity of the client”

VI.  Claims  documentations must  be  monitored  as they progress. A little time spent thinking clearly right from the start will evade lot of unnecessary and time consuming patch-ups and straightening out later on. Unpleasant decisions bore timely with proper justification of the resolution is better than deferment which is bound to create an unpleasant situation.

VII. Proper underwriting is essential as defective underwriting results  in  complication at  the  time  of settlement of  claims. The  underwriting  and  claims department     should           not          work       in             segregation. Furthermore Flawed underwriting may saddle the companies with unwanted claims. Any defect / ambiguity in the documents issued invariably goes against insurance companies. It is therefore of utmost

Importance that the client is made aware in very clear terms about what exactly is covered and what is not. There should be a strong system of audit for examining the documents being issued.

VIII. Lot of resources are spent when claim cases go to alternative dispute resolution methodologies such as Ombudsman or Court. Besides, adverse comment bring bad name, when we are held liable. Insurance companies are invariably at the receiving end. The “watch and wait” attitude must change.

IX.  Claims-settlement  have  social  service  angle which must be met. In times of natural calamity lot of bad publicity comes to insurance company for delay in settlement of claims. This is in spite of the fact that in such situation insurance companies goes out of their way to settle claims at times even on ex-gratia basis. In any case claims relating to the assets of weaker section needs to be attended on priority. So do the health / medical related claims.

In view of the above, it is necessary that Insurance companies manage the claims rather than handling them. Insurance companies have a corporate claims management philosophy Managing claims involves not only claims processing but goes on to cover the entire range of claims management – strategic role, cost monitoring role, service aspect as also the role of people handling the claim.

Out of the total outgo on account of claims it is estimated  that  around  10  to  15  %  is  because of leakages,  frauds  and  inflated  claims.  In  absolute

terms this will be quite substantial amount. If this can be effectively checked, the benefit can be passed on to the customer by way of reduced premium rates.

Claim Reserving

Claims reserving is also an important part of the overall claim management process. Adequacy of claims reserving is important for any insurance company to meet its claim obligation.

In fact in a study in USA of the insurance companies going “bust” 34% (highest) was on account of insufficient reserves (www.irm.com) the analysis of

reserves and the process that goes into making the same and its comparison with past experience can help address such important concerns as;

·       Company’s   likely   future   obligations   on account  of  claims  and  its  ability  to  meet

them. This aspect is usually reserved under

IBNR (Incurred but Not Reported)

·       Solvency  aspect  and  assessing  the  true picture of the financial health.

·       Analysis of claims trend can help to timely initiate remedial action. e.g. restricting a particular class of business.

·       Effectiveness of loss control measure.

·       Average time being taken for the settlement of a claim and the claim settlement ratio and

how it compares with other operators in the market.

The claims management philosophy involves, the company  having  written  corporate  philosophy  on

claims management setting out the broad approach aiming to provide high quality service. It should specify the nature of claim service at each stage of the claim process, the speed of the claim service.

Attitude of the claims Team

It should be ensured that claim department which has to  deal quickly and fairly with all the claims have competent and well trained staff with right attitude. The claimant should not be treated as an intruder. In fact he is  reason for  our  existence. The  time-gap between reporting of claim and its ultimate settlement needs to be reduced to the bare minimum. System of time-audit for self-check may be introduced. The approach of people handling claims is important. Emerging challenges cannot be faced with past mind set and approaches. The personnel of insurance company should therefore change their present attitude, behaviour and must show flexibility to effectively   respond   to   the   requirements   of   the markets. They should thus exhibit empathy.  Mere

‘Sympathy’ will not do.

Let’s settle the claim gracefully. Let’s enjoy good image on that count. Let’s enjoy the confidence and

Good will of our customer for that is the ultimate litmus test for our service. In the likely changes that are going to take place as can be visualized (that is a topic for another day)

Bench Mark

The differentiating factor amongst the various players in   the   market will   continue to   be   the   pricing, innovative product lines and the quality of service in general and more particular the claims service. If the customer does not get good service everyone is going to pay the penalty and penetration of the industry will continue to be derisory comparatively to other aspects of finance.

Let’s see the writing on the wall and let’s responds to the needs of the hour positively. We are capable of that -- there is no doubt about it. Our capability commitment must be reflected in our conduct and behaviour so as to change the prevailing perception about us and our service.