4 May 2017Financial Institutions Risk Bulletin - Claims Handling
Towards the end of March 2017 a number of insurance trade bodies representing Lloyds of London and London based insurance markets issued a joint press release announcing the intention to develop a single claims model for non-complex claims.
This is clearly a welcome development as smooth and efficient claim payments should be central to insurers service, particularly when working within a coinsurance model.
We welcome any framework that limits the amount of administration and individual opinions with regard claim settlements, but it should be highlighted that this agreement is only envisaged to operate for ‘non-complex’ claims - likely to be those valued within a threshold of circa £250,000, or with sufficient complexity to warrant closer attention.
Financial institutions claims more often than not are both complex and typically involve substantial quantum well in excess of such a threshold. As such, we thought it timely to review what practical steps can be taken to help ensure that in the event of a claim it proceeds in the most efficient manner.
Ultimately we believe that insurer selection, insurance programme structure and coverage will be the predominant drivers in efficient and effective claims service:
- Insurer selection should take into account an insurer’s previous willingness to pay claims, particularly those of a contentious nature. Consideration should also be given to insurers that show a long term commitment to the sector and those for which financial institution insurance and expertise is core to their offering.
- The coinsurance model is often overused with placements needlessly over placed leading to a greater number of insurers and thus more claims agreement parties than necessary. This leads to a higher administrative burden and risks of an insurer with a minority proportion taking a contrary viewpoint.
- A well drafted, broad policy wording with a restricted number of relevant exclusions and non-disclosure language in favour of the insured, will aid the smooth passage of claims.
- If excess layers are purchased, beware of old fashioned excess layer wordings as these are frequently full of insurer favourable language and opt instead for a recently constructed policy form. Issues such as insolvency of an underlying insurer or shaving of limits can be tackled in advance in the insured’s favour.
- Consider a layered structure with one insurer leading a number of successive layers as this will ensure a consistent lead claims underwriting approach.