Chapter 10

Question 1

why claims and underwriting would liase

Answer 1

• Report wordings that are causing problems in interpretation.
• Advise on clarity of new wordings
• Provide up-to-date claims data so underwriters review risk performance at renewal
• Liaise if a claim appears to be outside scope of coverage.
• Underwriting give Claims its view to settle certain claims.

Question 2

why claims and onwards reinsurance would liase

Answer 2

• Claims must know which reinsurances contain any forms of claims control or
  co-op clauses to avoid breaches.
• Code losses accurately to ensure aggregation of reinsurance recoverable.
• Keep claims data (reserves) up to date so reinsurance renewals are effected on accurate loss data

Question 3

why claims and finance would liase

Answer 3

• early warning of large individual payments being made
• Liaise in cases of high volumes of claims

Question 4

Broker’s role in the claims process

Answer 4

broker- first point of contact with insured and first party to know about claims aka ‘first advice’ or ‘first notification’. broker gathers info about the loss and work out which insurers need to be advised through reviewing contracts. They decide to present claim electronically or using paper.

Question 5

On an ongoing basis in the claims process, the broker’s role is:

Answer 5

• provide updated info to insurers, as provided by client and appoint experts
• negotiate on behalf of client
• receive any claims fund for onward transmission to their client.

Question 6

Insurer’s role in the claims process

Answer 6

In London Market there are 2 main claims handling agreements which set out pre-agreed combinations of insurers that make decisions on claims and bind the market. The involvement of overseas insurers, can be decision-makers where London Market insurers are bound by decisions.

• Lloyd’s and
• International Underwriting Association of London (IUA) Company Markets

Question 7

IUA Company Market (non-marine)

Answer 7

Members of this Company Market aren’t prepared to agree to one leader binding or making claims decisions on behalf of rest. Broker needs to obtain agreement of all individual insurers on a risk that are placed. This applies to any info submitted by broker, whether advice or request for settlement. The exception is individual companies can set up the claims agreement system to automatically bypass them if their share is below financial limit.

Question 8

IUA Company Market (marine and aviation)

conditions for settlement

Answer 8

Advices can be agreed by the lead Company Market underwriter only.

• Marine (not excess of loss). If Lloyd’s involvement, 1 company can bind the Company Market. If no Lloyd’s, first 2 companies have to agree.
• Aviation (not excess of loss). If direct , first 2 companies have to agree. If facultative reinsurance, lead company only.
• Excess of loss reinsurance - first 2 have to agree companies must agree

Question 9

Lloyd’s Market

Answer 9

Claims handling within the Lloyd’s Market is governed by documents called Lloyd’s Claims Lead Arrangements.
Document contains rules concerning the agreement parties required for claims, together with exceptions for classes of business (term life, satellite) and business written by 1 syndicate, aka ‘singleton’. All claims which aren’t exempt, are single or dual leader agreements in Lloyd’s. Claims fall into two categories standard or complex based on (non) financial criteria

Question 10

lloyds market
Financial:

A claim is complex (two leaders) if:

Answer 10

amount claimed, net of deductibles/ excesses or similar, Lloyd’s share on a single risk is:
– more £1m for third party business
– more £2m for first party business
– more £5m for excess of loss reinsurance.

Each Lloyd’s risk code is assigned to 3 categories. if a risk code covers first and third party, claims adjuster decides level to be used, depending on claim. For claim to be triggered, leader believes theres a greater 50% chance, limit will be exceeded.

Question 11

Non-financial

claim will only be complex (two leaders) if one or more of the following situations applies:

Answer 11

• claim for extra contractual damages, or damages in excess of policy limits
• allegation against insurers of non-compliance with regulatory requirements in relation to claims handling
• active or potential dispute resolution proceedings of any type.

Claims move between categories during lifecycle. This is dynamic triage, very rarely will a claim require two decision makers at every stage of its life. Under CLA, leader ensure to Lloyd’s market that they are kept advised, via ensuring watch list codes are applied to claims so followers can monitor, sending Material Development Communications, calling market meetings.

Question 12

Single claims agreement party (SCAP)

Answer 12

• project promoted by brokers who want to streamline handling and agreement of smaller, simple claims in London Market.
• clause (LMA 9150) sets out basis for agreement and is in open market + lineslip MRCs. Its not used on proportional treaty reinsurances or binding authorities.
• If Lloyd’s leader agrees to allow clause, Lloyd’s participants on the slip are bound by that decision. Company Markets are free to make individual decisions.
• Claim is eligible for SCAP if financial value is less £250,000 or equivalent to slip and claim is not complex or controversial. Slip leader decides this and have final decision if the claim is handled under the rules.

Question 13

Role of Velonetic/XCS in the claims process

Answer 13

Xchanging Claims Services - Velonetic, for Lloyd’s insurers maintains Lloyd’s Market claims database, includes entering data, sending overnight messages to insurers and moving funds from syndicates to brokers. ‘Technical Processing’ service and conducted on files. leaders choose to delegate authority to another party to handle claims. This delegation can be to XCS where they act solely for leader, meaning an XCS adjuster making lead decisions will be working with another XCS colleague whos entering data on the market systems

Question 14

Experts

Answer 14

• experts, investigate claims, and defend insured against any legal action (liability)
• appointed by broker as a communication channel, reports sent to insurer via broker.
• Expert management is when party (insurer) employing expert ensures expert is briefed and understands whats required.
• insurers issue documents aka ‘Terms of Engagement’ to help expert to understand whats required. These are set out required scope and frequency of reports
• when expert is appointed, insurer provides them with instruction letter covering specifics of task

Question 15

The types of experts that might be used in the claims process are as follows:

Answer 15

• lawyers
• loss adjusters - inspect damage, make recommendations for repairs
• loss assessors - similar to loss adjuster but client insured, assists them with claim
• surveyors to evaluate loss or damage
• third party administrators
• accountants
• investigators – injury claims
• specialist experts
• average adjusters - specialise in marine claims and assess
• subrogation /recovery specialists.

Question 16

Practical claims handling

Answer 16

• Once notified of a loss, broker chooses insurers they need to obtain instructions.
• Broker submits info to agreement parties, on paper file or an Electronic Claims File.
• Agreement parties consider info and respond to broker.have to check for a conflict of interest. This can be managed by ensuring separate claims personnel are involved. If not, should hand over agreement party role to another insurer
• Lloyd’s, XCS enters claims data onto XCS system to be sent to syndicates on risk.
• Broker receives messages on agreement parties’ comments. Agreement parties receive messages on info of claims
• Should agreement parties agree to payment, funds are debited from their accounts to broker.
• Broker updates file and repeats process

Question 17

first notification of loss:
- professional indemnity
- cargo

Answer 17

• PI – insurers nominate a lawyer to be the point of contact
• Cargo – insured notify a local surveyor to review/ suggest remedial action for damaged cargo.

Question 18

what happens if there’s a conflict of interest

Answer 18

insurer considers whether conflict can be managed internally, having separate claims personnel handling different claims, making sure theirs no visibility of each others’ files. If conflict is substantial, insurer will declare a level conflict. This involves them giving up agreement role. conflicting insurer pays share of claim and expenses – not involved in decision making.

Question 19

electronic claims handling

Answer 19

Electronic Claims File (ECF) where broker loads and submits data and documents to insurers. not all claims are handled via ECF, the broker needs to ensure the claim is not ‘out of scope’ list. If claim is not ‘out of scope’, broker starts presentation to insurer.
ECF comprises two components:
- data messaging system/database called CLASS
- document repository

Question 20

Electronic claims file - ECF

Answer 20

• broker sets up electronic message and creates a unique reference for claim aka Unique Claims Reference (UCR).
• Each claim is linked to correct policy. MRC has a Unique Market Reference (UMR). This identifies the policy and document repository.
• broker sets up claims data using UMR + UCR and completes data message fields with info about claim
• add to the document repository all of the documents that would be in paper claims file or attached to email.
  – broker sends electronic message
  – CLASS data messaging system has built-in routing mechanisms, message is sent to leader in Lloyd’s and Company Markets. can view comment on system
  – leaders view all attached documents

Question 21

Electronic claims file - ECF

2nd part

Answer 21

• leaders consider presentation, they can agree or query it. Broker sees response of leaders and message continues down electronic path to agreement party.
  – agreement parties use a combo of ‘radio buttons’ and text to put comments on broker’s presentation
  – For Company Market , leader ‘circulates’ message, system feeds data into company insurers’ databases overnight.
  – For Lloyd’s, theres a second syndicate that sees claim before arrives with Velonetic, leader ‘tell’ the system to send to second syndicate. the second syndicate has deals with it, then goes to Velonetic.
  – Velonetic takes data in file and copies it to its system to send electronic message to syndicates.

Question 22

Paper/email file process - file creation

Answer 22

broker identifies parties they need to obtain instructions, make a paper file containing info insurers need to consider claim and give instructions for next steps. info broker includes in file for a first advice includes:
- copy of MRC and endorsements to it. If claim is on binding authority, include binding authority and certs evidencing insurance issued by coverholder
- All info received to date about the loss.

Having made up file, broker contacts insurers to obtain instructions. For Lloyd’s agreement parties, no electronic message will be sent by broker if using a paper or email file and arrival might be first notice of the loss. leader considers file and asks questions, appoints experts and might decline the claim if there’s enough info to indicate coverage is unlikely. comments are written on broker’s paper file, or sent in an email if thats how the info was presented.
Lloyd’s leader doesn’t need to enter claims data into system. broker takes file sends an email to Velonetic where they’ll enter data for Lloyd’s market.

Question 23

two types of potential conflicts:

Answer 23

• Organisational conflict - insurer decides it can’t be an agreement party on claim and role is passed to next insurer on the list. Conflicted insurer has to pay its share of any claim. Broker notes which insurer is withdrawing from agreement party role and ensures they send requests for response to new combo of insurers
• Individual conflict - ‘Chinese Walls’ or ‘Ethical Walls’ Seeks to manage conflict internally. Insurer’s claims adjuster ensure that files are marked to tell brokers who to see within organisation.

Question 24

when can monies be paid

Answer 24

Monies can be paid at any time during the claim lifecycle either as an interim payment of indemnity (aka payment on account), or experts’ fees.

Question 25

what is the enterprise act 2016

Answer 25

claims will be settled in a reasonable time is in any insurance contract subject to English law. this means the insured has the right to commence an action for damages for late payment of his claim any time up to 12 months after claim was paid.

Question 26

Should the agreement parties agree to any payment being made, the movement of money is carried out in one of two ways depending on the sector of the market:

Answer 26

- Company Market, agreement parties agreeing to settlement transaction that broker puts on electronic messaging system will trigger money moving from their accounts and last insurer’s response will trigger payment from all of them - Lloyd’s Market, Velonetic enters the settlement info onto database once agreement parties agreed the settlement. Velonetic triggers movement of money from Lloyd’s insurers.

Question 27

who can insurers delegate claims handling authority to

Answer 27

delegate claims handling authority under binding authorities to coverholders or organisations i.e. third party administrators (TPAs)

Question 28

process of claims handling under binding authorities

Answer 28

- Parties handling claims under delegated authorities receive info from broker or insured. handle claims and refer anything outside authority to principals. These referrals go via broker and use a paper file or ECF. - monthly the coverholder sends a ‘bordereau’ to insurers. This is reviewed by agreement parties and info updated onto the insurers’ systems.

Question 29

difference between claims handling under binding authorities

Answer 29

- insurers provide the coverholder with money up front, to settle claims. This is ‘loss fund’. when bordereau are submitted, loss fund is replenished by insurers on basis of claims that have been paid out in the previous month. - when claims are concluded, loss fund is returned to insurers in full, unless they stopped replenishment process and let funds run down. the balance left in fund is returned to insurers.

Question 30

considerations when handling claims

Answer 30

- indemnity - subrogation - contribution - proximate cause - deductible / excess - exclusions

Question 31

AI use with claims

Answer 31

aim in London Market is to digitise contracts to enable first notice of loss process to be automated. By comparing key details about claim with policy details e.g. check whether date of loss falls within the policy period. However, there are other ways that tech assists claims: - looking for patterns as part of fraud - identify potential claims far earlier in the process.

Question 32

insurance fraud - what claims personnel should look out for

Answer 32

- excessively documented claims file - pressure to settle - reluctance to answer questions - stories that don't add up Failing to spot and prevent fraudulent claims is claims leakage, needs to be identified and prevented.

Question 33

UK regulation of claims handling

Answer 33

FCA handbook contains Insurance: Conduct of Business sourcebook (ICOBS) , includes a chapter of requirements for claims handling. Certain sections of sourcebook apply to insurers and to intermediaries. There are distinctions between acceptable behaviour between consumer + commercial clients.

Question 34

ICOBS 8.1.1 says:

Answer 34

An insurer must: 1. handle claims promptly and fairly 2. provide guidance to help a policyholder make a claim and info on progress 3. not unreasonably reject a claim 4. settle claims promptly once settlement terms are agreed.

Question 35

ICOBS 8.1.2 says: A rejection of a consumer policyholder’s claim is unreasonable, except where there is evidence of fraud, if it is for:

Answer 35

1. non-disclosure of a fact material to risk which the policyholder couldn't be expected to disclose 2. non-negligent misrepresentation of a fact material to the risk 3. breach of warranty or condition unless the claim are connected to breach and - under ‘life of another’ contract - warranty is material to risk and drawn to customer’s attention before conclusion of contract.

Question 36

ICOBS 8.8.3 deals with conflicts of interest and says:

Answer 36

1. firm manages conflicts of interest fairly. SYSC 10 requires intermediary to take reasonable steps to identify conflicts of interest. 3. If a firm acts for a customer in arranging a policy, its their agent. If firm intends to be insurance undertaking’s agent in relation to claims, it considers risk of becoming unable to act without breaching its duty to the insurance undertaking or the customer making the claim. 4. firm considers whether declining to act would be best step when cant manage a conflict, i.e. firm knows its customer will accept a low settlement for quick payment.

Question 37

Anti-money laundering training

Answer 37

Under UK regulatory rules, regulated firms have to ensure that processes minimise risks of firm being committing financial crime. Majority of indicators for money laundering are spotted in claims process, its important all personnel's are trained to spot signs of money laundering activity and report them.

Question 38

Overseas regulation Californian claims

Answer 38

In US, states have their own claims handling regulations. these were created to temper behaviour of local insurers and protect innocent insured from bad behaviour of insurers Points for London Market claims handling Californian claims are: - timelines for acknowledging receipt of claims - timelines for updating insured if investigations be ongoing - info insured need to be given should claims be denied so can complain to California department of insurance. London Market insurers need to ensure all personnel handling Californian claims are certified annually.

Question 39

Sanctions

Answer 39

A sanction is a ban. Governments can ban parties (gov, businesses, individuals) from doing business with certain individuals, businesses, gov or countries. Insurers comply with these. Sanctions control access to funds for regimes, companies or persons who are less desirable – have links to terrorism or unlawful behaviour

Question 40

UK/EU/UN sanctions - financial

Answer 40

Financial sanctions can be: - prohibiting transfer of funds to a sanctioned country - freezing the assets of company or an individual - freezing assets of a gov, or companies and residents of country concerned. EU regulations imposing and implementing sanctions are part of EU law, directly applicable and have direct effect in Member States.

Question 41

US government sanctions

Answer 41

London Market has close links with USA, through business coming in and because many of insurers operating in London Market have a US parent company. it’s important for insurers to comply with US sanctions. A example is Cuba.

Question 42

Practical problems with sanctions

Answer 42

insurers have to be careful who they sell insurance, and who claims are paid to, whether the insured is acceptable, the ultimate receiver of the funds may not be. Another practical problem with US sanctions is all US dollar payments will go through US bank and can be frozen if there is a problem. Ultimate penalty for insurer is freezing of their USD bank accounts.

Question 43

How do insurers find out about sanctions?

Answer 43

- Substantial info is available on websites for HM Treasury and the US Department of the Treasury, Office of Foreign Assets Control (OFAC). - Lloyd’s insurers + brokers access the Crystal system on Lloyd’s website, has info about sanctions on country basis. - Market Associations provide guidance to their members.

Question 44

whos controls are FOS and FSCS under

Answer 44

under the control of the Financial Conduct Authority.

Question 45

The type of information that a London Market insurer should communicate to insureds within its published complaints procedure includes:

Answer 45

- Who to contact in event of a complaint - timescales that are applied for the consideration and resolution of complaint. - It goes without saying that sticking to these timescales is as important as having them written down in policy documents. - fact that FOS exists should insurer be unable to resolve the complaint to the insured’s satisfaction. - fact that referring matter to FOS does not remove any of insured’s legal rights.

Question 46

what is the Financial Ombudsman Service (FOS)

Answer 46

free, independent and impartial service that deals with unresolved disputes. Membership is compulsory for all authorised firms, including intermediaries.

Question 47

The FOS only deals with disputes from eligible complainants. The list of eligible complainants includes:

Answer 47

- consumer; - micro-enterprise <10 employees and turnover of <€2m - charities annual income <£6.5m - trustees of trusts with a net asset value of <£5m - small businesses annual turnover of <£6.5m and <50 employees - guarantors.

Question 48

when can a complaint be made to FOS

Answer 48

after they have exhausted internal complaints procedures within the organisation or intermediary, and be dissatisfied with the outcome. Any legal proceedings that are under way must be withdrawn prior to the complainant approaching the FOS as FOS will not become embroiled in legal proceedings.

Question 49

The complainant can refer their complaint to the FOS within the earliest of:

Answer 49

- 6 months of the date on firm’s letter advising claimant of its final decision - 6 years after the event complained about - 3 years after the complainant knew, or should have known, that they had cause for complaint.

Question 50

what happens in the complaint hasn't been referred in the right time

Answer 50

organisation or intermediary can object to the FOS taking on complaint on the grounds that it is ‘time-barred’. FOS is able to consider complaints outside these time limits in exceptional circumstances, i.e. pension transfers and opt-outs. It can review cases outside time limits if organisation agrees.

Question 51

FOS authority

Answer 51

- FOS requires parties to complaint to produce necessary info or documents and failure to do so can be treated as contempt of court. All authorised firms must cooperate with the FOS. - FOS investigates complaint and aim to answer the complaint within three months. - Most disputes are resolved through mediation or informal adjudication by a caseworker or adjudicator. - both parties have a right to appeal the initial outcome, so one of the panel of ombudsmen will make a final decision.

Question 52

how does the FOS reach a decision

Answer 52

The FOS will reach a decision based on whats fair and reasonable, taking into account law, FCA rules and good industry practice, i.e. ABI statements and codes of practice. FOS is not bound by law or legal precedent and will make a judgment on the merits of each case. Aim is to ensure customers are treated fairly and that law is not used as an excuse to avoid paying fair claims. FOS does aim to be consistent in the way it deals with types of complaints.

Question 53

Redress can be awarded in two ways:

Answer 53

- ‘money award’ - maximum monetary award is: £445,000 on or after 1 April 25, £200,000 on or after 1 April 2019. FOS may recommend a higher figure, but not binding on firm. FOS may decide the firm should pay interest. This is calculated at 8% per year, unless claims before April 1993. - directions award - actions needs to take: -pay insurance claim that had been rejected -calculate and pay redress according to an approach or formula set by the regulator -apologise

Question 54

what happens after the decision has been made by the FOS

Answer 54

Decision notified in writing to the complainant and respondent. complainant accepts or reject the decision within the time limit specified by FOS. If the complainant accepts its binding on respondent. If complainant rejects the decision its not binding and are free to pursue the matter in court. If the complainant does not respond its treated as a rejection..

Question 55

The FOS is funded by both:

Answer 55

- a general levy paid by all firms - a case fee payable by the firm to which the complaint relates.

Question 56

lloyds complaints department

Answer 56

lloyd’s has its own complaints department for policies written at Lloyd’s, which acts as an interface between FOS and individual managing agents. This team only handle complaints from insureds who would be eligible to go to FOS. Lloyd’s complaints department receives notification of a complaint from the FOS or from client. Lloyd’s complaints works with syndicates and insured in resolving the complaint. if can't be resolved, insureds have the option of referring matter to FOS.

Question 57

london market insurer receiving a complaint from overseas

Answer 57

London Market insurer can receive a complaint from an overseas client and UK. If receive a complaint via an overseas regulator then response must follow rules applicable for the part of the world the complaint originates.

Question 58

what is The Financial Services Compensation Scheme (FSCS)

Answer 58

exists to protect insureds should their insurer not be in a position to pay valid claims

Question 59

There are various limits on the compensation that the FSCS pays out, but the basic rules are:

Answer 59

Protection is 100% for: - compulsory insurances - professional indemnity insurance; - long-term insurance - claims for injury, sickness or infirmity of the policyholder. Protection is 90% of the claim with no upper limit for other types of policy, including general insurance advice and arranging.

Question 60

what is the trigger for the FSCS

Answer 60

The trigger for the FSCS becoming involved is the insurer going into ‘default’ and unable to pay, which is usually because it has been put into provisional liquidation and has ceased to operate as a company.

Question 61

Lloyds and the FSCS

Answer 61

Lloyd’s can state no valid claim has ever gone unpaid. Secret is Central Fund. Lloyd’s is a member of the FSCS. Lloyd’s insurers have to pay a levy for the funding of FSCS and this levy is paid partially out of the Central Fund.