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.
