concepts of claims, b1-54

8/8/2019 Concepts of Claims, b1-54

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Concepts of claims in general insurance:

By: M.Rakesh(B1-54)Introduction:

What is General Insurance?

Insurance other than Life Insurance falls under the category of General Insurance. General Insuranc

comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health

Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and

Omissions insurance for professionals, credit insurance etc.

Non-life insurance companies have products that cover property against Fire and allied perils, flood storm andinundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non

life companies also offer policies covering machinery against breakdown, there are policies that cover the hul

of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further

insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business.

In respect of insurance of property, it is important that the cover is taken for the actual value of the property to

avoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposes o

insurance, the insured will have to bear a ratable proportion of the loss. For instance if the value of a property

is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim

amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the property

by 50% ). This concept is quite often not understood by most insureds.

Types of general insurance

Home Insurance Policies - One can obtain cover against the risk of loss to residence and property

therein from theft, fire, earthquake, flood, or other contingencies.

Renters Insurance Policies - These policies secure property owned and stored by lessees in renta

premises. Sometimes the landlord may provide such cover. If not, purchasing insurance cover may be

useful.

Medical or Health Insurance Policies - Such policies provide financial security incase of seriou

illness or hospitalization.
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Auto Insurance Policies - These policies are required in certain countries like USA. Even if no

required, such policies are popular as they take care of the expenses in case of accidents. For example, the cost o

repairs, cost of reimbursing the aggrieved party, and medical bills may be covered by auto insurance policies.

Pets Insurance Policies - This is a popular category in the West. Pet insurance policies cover expense

incurred in relation to pets like medical bills or loss of pets.

Travel Insurance Policies - These cover any contingencies during travel.

Business Insurance Policies - Business insurance policies financially secure an organizations physica

and intellectual property.

Personal Liability Insurance Policies - Professionals may find these policies beneficial. They provid

cover against clients claim for loss suffered in certain situations.

Public Liability Insurance Policies - These policies are for entities conducting public events lik

event management organizations. They provide cover against costs incurred due to any unforeseen

incident in the entitys premise during an event.

Lifestyle Protection Insurance Policies - These kinds of policies provide financial security in case o

unemployment or major illness or such other reason. The idea being that the policyholder should be

able to maintain his/her lifestyle as was before the happening of any contingency.

There are general insurance products that are in the nature of package policies offering a combination of the

covers mentioned above. For instance, there are package policies available for householders, shop keepers and

also for professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurer

also offer customized or tailor-made ones.

Suitable general Insurance covers are necessary for every family. It is important to protect ones property

which one might have acquired from ones hard earned income. A loss or damage to ones property can leav

one shattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many

homeless and penniless. Such losses can be devastating but insurance could help mitigate them. Property can

be covered, so also the people against Personal Accident. A Health Insurance policy can provide financia

relief to a person undergoing medical treatment whether due to a disease or an injury.

Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery

stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries obusinesses that are financed by banks and other institutions do obtain covers. But are they obtaining the righ

covers? And are they insuring adequately are questions that need to be given some thought. Also organizations

or industries that are self-financed should ensure that they are protected by insurance.

Most general insurance covers are annual contracts. However, there are few products that are long-term.


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It is important for proposers to read and understand the terms and conditions of a policy before they enter into

an insurance contract. The proposal form needs to be filled in completely and correctly by a proposer to ensure

that the cover is adequate and the right one.

insurance contract determines the legal framework under which the features of an insurance policy ar

enforced. Insurance contracts are designed to meet very specific needs and thus have many features not found

in many other types of contracts. Many features are similar across a wide variety of different types of insurancpolicies.

The insurance contract is a contract whereby the insurer will pay the insured (the person whom benefits would

be paid to, or on the behalf of), if certain defined events occur. Subject to the "fortuity principle", the even

must be uncertain. The uncertainty can be either as to when the event will happen (i.e. in a life insurance

policy, the time of the insured's death is uncertain) or as to if it will happen at all (i.e. a fire insurance policy).

Insurance contracts are generally considered contracts of adhesion because the insurer draws up th

contract and the insured has little or no ability to make material changes to it. This is interpreted to

mean that the insurer bears the burden if there is any ambiguity in any terms of the contract.

Insurance contracts are aleatory in that the amounts exchanged by the insured and insurer are unequa

and depend upon uncertain future events.

Insurance contracts are unilateral, meaning that only the insurer makes legally enforceable promises in

the contract. The insured is not required to pay the premiums, but the insurer is required to pay the

benefits under the contract if the insured has paid the premiums and met certain other basic provisions.

Insurance contracts are governed by the principle ofutmost good faith (uberrima fides) which require

both parties of the insurance contact to deal in good faith and in particular it imparts on the insured

duty to disclose all material facts which relate to the risk to be covered. This contrasts with the lega

doctrine that covers most other types of contracts, caveat emptor(let the buyer beware).
http://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Insurance_contract#Definitionshttp://en.wikipedia.org/wiki/Standard_form_contracthttp://en.wikipedia.org/wiki/Uberrima_fideshttp://en.wikipedia.org/wiki/Caveat_emptorhttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Insurance_contract#Definitionshttp://en.wikipedia.org/wiki/Standard_form_contracthttp://en.wikipedia.org/wiki/Uberrima_fideshttp://en.wikipedia.org/wiki/Caveat_emptor


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CONTENTS

CLAIMSProcedure

Notice of loss

1. Policy conditions usually provide that the loss be intimated to the insure immediately. The purpose of th

immediate notice is to allow the insure to investigate a loss at its early stages.

2. under certain types of policies (e.g. burglary)notice is also to be given to police authorities .under rail transi

cargo policies, notice has to be served to the railways also.

3. on receipt of the intimation of loss or damage insurers check that:

a) the policy is in force on the date of occurrence of the loss or damageb) the loss or damage is by a peril insured by the policy

c) the subject matter affected by the loss is the same as is insured under the policy, and

d) Notice of loss has been received without undue delay.

Investigation and Assessment

4. On receipt of the claim form duly completed from the insured, the insures decide about investigation an

assessment of the loss. If 6the loss is small, the investigation to determine the cause and extent of loss is

done by an officer of the insurers. The investigation of other claims is entrusted to independent licensed

professional surveyors.

5. For personal accident claims, the insured is required to submit a report from the attending doctor specifying

the cause of accident or the nature of illness as the case may be and the duration of disablement. Medica

evidence is also required to support of workmens compensation claims. Live stock and cattle claims ar

assessed on the basis of the report of a veterinary doctor.

6. Third party claims involving personal injuries are assessed on the basis of medical opinion; those involvin

property damage are assessed on the basis of a survey report . in either case legal opinion is sought to

decide whether any liability at law attaches to the insured.

Surveyors and loss Assessors

7. as per IRDA regulations surveyors are granted license to conduct survey in seven classes of insurance

namely, fire, marine cargo, marine hull, engineering, motor, miscellaneous and loss of profits.

8. The practice in adjustment of marine claims is along different lines. General average losses are assessed by

specialists viz, average adjusters, other losses (e.g. total loss, partial loss etc...) are assessed by surveyors.


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Claims Documents

Claims Forms

9. The contents of the claim form vary with each class of insurance, in general insurance the claim form idesigned to elicit full information regarding the circumstances of the loss, such as date of loss, time, caus

of loss, extent of loss, etc. The other questions vary from one class of insurance to another claim forms are

invariably used in fire and miscellaneous insurance.

10. The issue of claim form does not mean that liability for the claim is admitted by insurers. Thus, claim

forms are issued with the remark without prejudice. All correspondence with the insured is also marked

without prejudice.

11. In addition to the claim form, independent survey report etc. Certain documents are required to b

submitted by the claimant or secured by the insurers to substantiate the claim. For example for fire claimsa report from the fire brigade would be necessary,. For cyclone damage, a report from the metrologica

office may be called for. In burglary claims, a report from the police may be necessary. For fatel acciden

claims, reports may be necessary from the coroner and the police. For motor claims , the insurer like to

examine driving license, registration book, police report etcin marine cargo claims, the nature o

documents varies according to the type of loss, particular average, inland transit claims etc..Thes

documents have been identified earlier in the marine insurance.

Arbitration

12. Arbitration is a method of selling disputes arising out of contracts. Arbitration is done in accordance wit

the provisions of the arbitration and conciliation act, 1996.

13. The normal method of enforcing a contract or selling a dispute there under would be to go to a court of law

Such litigation, however, involves considerable delay and expense. The arbitration act allows the parties to

submit disputes under a contract to the more informal, less costly and private process of arbitration.

14. Fire and most miscellaneous policies constrain an arbitration clause which provides that if the liabilit

under the policy is admitted by the company, and there is a difference concerning the quantum to be paid

such a difference must be referred to arbitration.

Settlement

15. If the claim is found to be inn order, payment is made to the claimant and entries made in the records. Th

insured may not be the person to whom the money is to be paid. For example, if the property insured under

a fire policy is mortgaged to a bank, then according to the agreed bank clause, claim monies are to be pai

to the bank, whose receipt will be a complete discharge to the insurers. Similarly claims for the total loss on

vehicles subject to hire purchase agreements are paid to financiers. Marine cargo claims are paid to th

claimant who produces the marine policy duty endorsed in his favour.


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Salvage

16. Salvage refers to partially damaged property. On payment of loss, the salvage belongs to insurers; fo

example, when motor claims are settled on total loss basis, the damaged vehicle is taken over by insurers.

Recoveries

17. After settlement of claims, the insurers under the law of subrogation are entitled to succeed to the right

and remedies of the insured and to recover the loss paid from a third party who may be responsible for the loss

under the respective laws applicable. Thus, insurers can recover the loss from shipping companies, railways

road carriers, airlines, port trust authorities. For example, in the case of non delivery of consignment, th

carriers are responsible for the loss. Similarly, the port trust is liable for goods which are safely landed but

subsequently missing. For this purpose, a letter of subrogation duly stamped is obtained from the insured.

(Note: the IRDA regulations (protection of policy h holders interests) provide that the policy holders shal

assist the insurer. If the latter so requires in the prosecution of a proceeding or in the matter of recovery o

claims which the insurer has against third parties).

Claims Procedures and Claimants

Claims intimation

When you first notify your claim over phone or by letter, your insurer makes an entry in a register maintained

for that purpose and allots a number to your claim. This number, called claim number, is the key or password

to your claim file. Any further enquires or follow-up is likely to be more productive if you are aware of thi

number.

Insurer then sends you a form called claim form and also asks you for an estimate of the loss. This documen

draws information pertaining to the accident from you, based on which your insurer decides on the furthecourse of action. At this stage, you will also be advised of the various documents needed for processing your

claim. If not, you can ask for and obtain a list from the insurer. By doing so you avoid wastage of time and

money(by way of interest loss) in following up later on.


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Claim Documents

Policy type Fire Machinery Motor Burglary Marine

Purpose

Identification of

property

Policy, S.R,

Photos, Claimform

Policy, S.R,

Photos, Claimform

Policy, S.R,

Photos, Claimform

Policy, S.R,

Photos, Claimform

Consignment note, Invoice, Declaratio

policy, Packing list, S.R, claim formshipment surveys

Insurable

Interest/Proof of

Insurance

Policy Invoice, Policy R.C book,

Policy, certified

permits etc

Policy, Invoice,

etc

Policy/declaration, Certif

Consignment note

Loss & Perill Photos, Policereport, Met

report, Fire

brigade report,

Newspapercuttings if loss

reported, S.R

Photos, S.R Photos, Policereport, Met

report,

Newspaper

cuttings if lossreported, S.R

Books of accounts, F.I.R,

S.R, Photos,

newspaper

reports

Captains protest, S.R, Log book. Othdepending on the perill

Quantum of loss Estimates, Bills,

Receipts, S.R,Policy copy for

excess, etc

Estimates, Bills,


excess, etc

Estimates, Bills,


excess, etc

Estimates, Bills,


excess, etc

Policy/declaration, Invoice, Carr

certificate, Landing remarks, B/E, Bills for expense

Period Policy, C.I.,Proof of date

of accident ifany(e.g. F.I.R)

Policy, C.I.,Proof of date






Policy/declaration, etc

Compliance with

conditions

S.R S.R D.L, F.C, Trip

Sheet, Load

sheet, Permit,

FIR

S.R S.R

Preservation of

recovery rights

As per individual

case

May not occur.

As per each case

F.I.R, Keys,

Transfer forms,etc, in total loss

cases

F.I.R, Witness

statement, etc

Lodging monetary claim on carrier

other authorities

Others Subrogation

letter where

applicable

Subrogation

letter

Satisfaction

note/Subrogation

letter

Subrogation

letter

Subrogation letter/letter of indemnity

List of documents to be filed

The usual list of documents required is in table. This list is indicative and in general insurers tally al

documents for the information given.

Key to the Table1. S.R: Survey Report

2. D.L: Driving License

3. F.C: Fitness Certificate

4. F.I.R: First information report with police. At times final police report is also asked for.5. Consignment note: Railway receipt/Lorry receipt/Airway bill/Bill of lading, as applicable.

6. Monetary Claim: A letter has to be written to the carrier(roadways/railways etc) asking fo

compensation mentioning the amount of loss and holding the carrier responsible.

7. B/E: Bill of entry.

8. Other Authorities: Port trust, Customs, airports authority, etc.


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9. C.I: Claim intimation.

When you submit a completed claim form,

The insurer makes a provision for the loss in his books of account, based on these documents.

A surveyor is appointed where required. Surveyors are appointed for claims above a particular valu

where losses are partial requiring repairs.

In other cases the final receipts and bills may be submitted along with the claim form itself.

Survey

When a surveyor or official of the insurance company visits, you are expected to give full co-operation and

assist them in taking photographs or obtaining information from various departments. When such occasion

arise it may be prudent to list the agenda and also find out the availability of the persons required, for a fruitfu

meeting. This will ensure that claims are settled in the minimum possible time.

Surveyors are independent licensed (now by IRDA) professionals appointed by the insurance company on fo

each claim. They inspect the damaged items, estimate the loss and submit their reports to the insurer. Their rolis to determine the following:

Check on adequacy of sum insured

Determine the amount of loss

Check for compliance with conditions and warranties

Take photographs

Advice on valuation of salvage.

The Salvage of liability, however, is the prerogative of the insurer. As an insured you are expected to fully

cooperate with the surveyor and provide him with any relevant information.

Discharge and settlement

When the surveyor submits his report and the claim is payable, the insurance company usually calculates th

claims payable and sends you a voucher called the discharge voucher. This is usually for the full and fina

settlement of claim. If you are dissatisfied or unclear as to the basis of settlement, you can approach you

insurer for clarification. After the vouchers are signed, you will be asked to surrender the salvage and also

transfer your rights in the damaged property to the insurer. When all these requirements are complied with

your claim will be settled by way of cheque.

When you will receive your chequeTill recently this was unpredictable, with not being guided by any service standards. However, many of th

insurers are now undertaking to settle your claims within 10-15 days or a similar definite time frame.At times, insurers also pay partially when they are sure of their liability. The full settlement is done later afte

all processes are completed. Usually, the surveyor makes a preliminary assessment of loss and the insure

makes an on-account payment on the basis of his recommendations. Such settlements are done in the case o

large claims, since they may create a financial strain on the claimant insured due to a longer claim settling

process. You can avail of this instalment facility to reduce the time gap.


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When (under what conditions) an insurer will settle a claimTo begin with, your insurers would like to verify that are indeed liable for the loss. Your claim should primafacie satisfy the following essential requirements before it can be admitted.

PeriodInsurers first make sure that your policy was valid on the date of loss, which means that the premium should

have been paid and the accident should have occurred between the start and the end dates mentioned in you

policy.

Property

The next step taken by insurers is to verify that the property damaged and the property insured are the same

Insurers do thisprima facie by comparing the description of property in the policy and claim notification.

Peril

At the cost of repetition, it should be mentioned that not all the losses to the asset insured are reimbursed. Th

loss must have been caused due to an insured peril. This peril causing the loss should be specifically coveredby your policy. You can easily refer to the operative clause in your policy and make sure that your claim i

valid on this ground. At the same time, you should also remember to go through the listed exclusions to ensure

that the loss does not fall under them.

Insurable interest

You should have an insurable interest in the property. This is a feature unique to insurance contracts. Generall

insurable interest should exist both at the time of taking insurance and last till the time of loss.

Compliance with conditions

Insurers also examine if you have complied with all the conditions and warranties of the policy before they

admit liability.

How much will be paid

Principle of indemnity

Once the liability is established prima facie, steps will be taken to as certain the quantum of loss. The amounof claim paid is based on the principle of indemnity. To recapitulate briefly, indemnity aims to put you in the

same financial position as before the loss. In applying the doctrine of indemnity insurers attempt to determin

the value of the damaged property at the time and place of loss. Thus, if the loss is to raw materials, the cost ofprocuring them again may be the measure of indemnity. If the loss to furniture, than replacement by same typ

and quantity of furniture may be the appropriate measure. If second-hand or resale furniture is available, th

same may be purchased and given to you. Otherwise new furniture may have to be bought.


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Modification to the principle of indemnity

Some modification to the principle of indemnity may be required to calculate the loss. These are enumerated a

follow:

DepreciationThe application off depreciation varies in each policy. While motor policies specify the rates of depreciation, i

is sorted out after a claim in fire policies. Even in machinery insurance, where sum insured is on replacemen

value basis, depreciation is applied on some parts. This is generally incorporated into the policy by way o

endorsements.

Reinstatement value policiesThis is a special type cover given to buildings and machinery, where depreciation is not deducted from th

claim amount. When you opt for this cover, the sum insured selected by you must represent the mew value o

the property.

Agreed value policiesWhere the property value is not easily determined at the time of loss, sum insured is based on an agreed value

A notable case is the policy for marine cargo. Since it would be difficult to determine value at mid-sea after the

loss, insurers opt for agreed value covers.

LimitsSome policies limit the liability of the insurer of loss. An example can be found in the fire policy, where valued

articles above Rs.10000/ are not automatically covered.

Agreed additional costsAt times you have to incur costs in removing debris, modification of property after a loss to suit new

regulations, etc. clauses are attached to insurance polices that allow you to incur these costs.

AverageIf you choose to declare your property for a value lesser than its true one, the premium contribution you make

to the insurance fund is proportionately lower. In such a case the insurance company considers you as a partne

in sharing the risk, and any loss is shared by you in the same proportion.

ExcessMany polices have a certain minimum loss that has to be borne by you. Whatever your loss may be, your

insurer reduces this amount form the claim. This saves your insurer the cost of servicing several small claims

and also ensures that you exercise reasonable care in safeguarding your property.

SalvageWhenever there is a replacement and the insured gets a new part or asset, the claim would be adjusted for the

value of the old or damaged part. This is because the part is likely to have some scrap value and if you retain it

you gain to that extent.


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Claims Management

Delays: Reasons and Remedies

The most common reasons for delays in setting your claims and remedies therefore are listed below.

Delayed or incomplete intimation of claim:

When intimating your claim please clearly specify your policy number, date ofloss, cause of loss an

description of the property damaged. When details are not clear your insurer may not be able to link you

policy and prima facie establish if a liability can exist.

Incomplete claim formHere again, the insurer would like to ascertain possible liability and appoint a specialist surveyor if needed

Hence it is prudent to completely and truthfully fill your claim form. On the basis of your intimation and claim

form your loss is prvided for in your insurers, books of account. If an insufficient amount is provided for, the

claim may be subject to internal controls and queries leading to a delay for you.

Non-submission of documents:One of the chief reasons for delay is the haphazard submission of documents. A claim is not settled until all th

documents are submitted, and therefore partial submission does not help. If you dont respond to your insurer

letters and also not submit documents within a reasonable time your insurer may close your claim as No

Claim. In such a case, if the claim is pursued at a later date it may either not be entertained by your insurer o

it might be further delayed since the claim may now have to get re-opened at a higher level of authority.

Dispute in valuation:Having a specified method of valuation and being clear on what is covered will avoid delay due to disputes

Sometimes insurers also help in getting your assets valued prior to accepting the risk and premium. You can

avail of such facilities provided to you to minimize problems later.

Documents lost at insurers end:Though elementary knowledge, it is still worth stressing this: It is prudent to enclose documents numbered

with a covering letter and send them through registered post or otherwise have them acknowledged.

Delay in survey report:Once you submit all the documents called for by the surveyor, you can report the same to your insurance

company. Retain copies of these and send a copy of the covering letter to the insurer, Insurers can follow upwith the surveyor for his report. You will also be able to approach other forums if there is undue delay on the

part of the surveyor or insurer.

Lack of proper proof of loss or its cause:


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Where a claim intimation is delayed or the loss is not easily proved- such as washing away in a flood-it i

prudent to get in writing in the beginning itself(as soon as you intimate the claim)from your insurer, th

procedure involved. If unattended for some time it may prove more difficult for you to substantiate your claim

For example, if goods are washed away in a flood, some proof of existence of goods prior to the floods may be

asked for and you should plan for such a situation.

Close proximity claims:When your loss has occurred soon after taking a policy(there are stipulated time limits and it is usually on

week) insurers investigate the claim for fraud. The system has in-built checks to control fraud, and the claim

will be processed subject to investigation only. For example, if a motor vehicle meets with an acciden

immediately after taking the policy, it will be investigated thoroughly to ensure that there has been no fraud

However if it has been renewed continuously, this problem may not occur.

Discrepancy or contradictory information in proofs submitted to insurer:Always cross-check your documents to verify their accuracy and consistency. Any careless error may lead t

further queries or investigation, and hence delay. Since insurers are answerable to the collective body opolicyholders in general they like to be absolutely certain that there is nothing dubious in your claim. Hence

all information, oral or written, should be carefully co-ordinate to avoid misunderstanding or misinterpretation

There should be close co-ordination between the various departments and functionaries involved in the

claim. Contradictory statements are bound to lead to problems.

Administrative slackness:

In addition to the above common reasons, the claim may be delayed due to administrative reasons or due to

overzealous stances taken by dealing officials or individual factors. You may have to take it up with higher

authorities or other forums.

Denial of claims: Reasons and Remedies

Cause of loss excluded under your policy:The onus of proving that the actual cause of loss is from included in your policy is on you. Proper assessmen

of risks, and planning your insurance covers, is the answer. Where the policy lists the perils covered, then

anything outside of it is beyond the scope of the policy. In such cases it is up to the insured to prove that th

cause of loss is indeed covered by the policy.

The property damaged is not covered under the policy:Ensuring proper description in your policy and opting for wider covers and special clauses wheravailable(such as designation of property claus in fire insurance) will safeguard your claim. Care should b

taken to ensure that all new properties are covered and renewal is promptly done for the assets currently held

(At times by oversight tanks, cooling towers, pumps, etc., which are outside the buildings are omitted.

Similarly, for group personal accident policies, new additions may not have been included bon time.


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Wrong description in policy:The insured should take great care in ensuring proper description in the policy. Additions made to the policy

schedule should be properly authenticated by responsible authorities. Periodical cross-verification of the asse

schedule with physical facts, at least of the major properties, should be done.

Break in insurance:If there is a break in insurance or the policy was not valid on the date of loss, your claim will not be paid.

Timely renewal of policy is a must.

Misrepresentation/ Non-disclosureAny facts material to the risk are to be disclosed to your insurer. For Example, if a consignment is imported

and is covered only for the portion of inland transit after it has landed at the port, insurers may reject the claim

if these facts were not disclosed in the proposal. This is because it may not be possible to ascertain th

condition of goods after landing at the port. They may have been already damaged. A policy may be issued

after inspection of goods.

Violation of policy conditions:There are several conditions in a policy, and you should take care to comply with all these. In case any of thesare violated the insurer would be right in denying your claim. Thus, if your car has been insured as a private

vehicle and it has been used as a taxi, it is a violation of the policy.

Alteration of the risk or assets covered:If any change of ownership or occupation has been done and you have not obtained your insurers consent, th

claim may be rejected.

Premium not paid on time:Section 64 VB of the insurance Act states that full premium should have been paid before commencement o

the insurance contract. Where this has not been done or premium collection is inadequate, delay/denial of claim

may result. These problems are more where bank guarantees or deposit premiums are accepted. For examplein a transit policy(open policy or cover) issued to cover dispatches based on declarations, there may b

occasions when the initial premium is exhausted and there is a gap before the next payment. In such cases any

goods dispatched in the intermediate time will not be covered. Enclosing photo copies of premium receipts and

statement of declarations submitted may help.

Diminution of Claim: Reasons and Remedies

Even when your claim has been settled in time you may be disappointed when your claim is settled for a valu

far less than your expectation. For example: A loss of Rs.35000/- is settled for Rs. 6000/- despite your being

insured for Rs. 10, 00,000/-. To ensure satisfactory claims settlement we need to go into the process o

assessing the quantum of claim and the problems encountered therein.

Depreciation:The application of depreciation varies in each policy. While Motor policies specify the rates of depreciation, i

is sorted out after a claim in fire policies. Even in Machinery insurance, where sum insured is on replacemen


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value basis, depreciation is applied on some parts. This is generally incorporated into the policy by way o

endorsements.

Assessment of loss:Other than the market value or replacement value before loss, the assessment of loss itself may be in dispute

Where finished goods are partially damaged, insurers may offer part settlement. However, the goods may b

totally useless to u if you have to discard them for reasons of brand image. For example, consider a case wher

one end of a consignment of cloth is damaged and the damage is 10%along the entire length of the cloth. Here

if the insurers offers10% for claim settlement, you may want to dispute it since the entire cloth is useless to

you. Your end user or buyer may not accept cloth of smaller specifications. In other words, you cannot cut of

part of the cloth and retain the balance. Since these are not laid out in the policy it gives cause for grievance

Interpretations in such cases may be with the dealing office. It may be possible to convince the insurer of your

stand. Otherwise, you may have to resort to other forums. If your stocks are prone to such losses, it may b

prudent to seek clarification at the inception at the inception of the policy itself.

Precautions to takeBy now it must be clear to you that getting a claim settled is akin to running a hurdle race. Each hurdle has to

be navigated successfully. Here are a few tips that will help you reach the finishing line comfortably. We havesummarized some precautions that can be taken to minimize disappointments at the time of claim settlement

This is in addition to the points mentioned in the foregoing paragraphs.

Precautions at the time of taking policy:

1. Generally the insurance agent fill up the proposal form, which the client signs. Please be aware that th

agent in such cases is not acting on behalf of the insurer, and any mistake by him will not bind the

insurer. The consequences will have to be entirely borne by the insured only. Hence, it is necessary to

go through the document fully and satisfy yourself completely before signing it.

2. Choose your sum insured appropriately. Improper valuation isone big reason for reduction of claimdue to the concept of averaging. The insured generally adopts RIV basis to ensure that the claim is

settled for the replacement value(normally higher). However, the effect of averaging and consequen

reduction in the claim is more in such cases. It is essential therefore to fix the sum insured carefully in

such cases.

Things to do on receiving your policy:

1. Check the details in the schedule.

2. Ensure that the document reflects your intentions while taking insurance. The perils you want covere

should be stated to the covered by the policy.

3. Notify any variation immediately and get it rectified.


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Things to do at all times:

1. Always intimate any material changes (e.g. occupation, ownership, etc) to the insurer at the earlies

Please note that material changes are those that add to the risk. When in doubt intimate to the company

2. Be aware of the policy conditions and abide by them.

Things to do after Claim:

1. Act as if uninsured. You are expected to take all the steps to preserve and protect your property that you

would have taken had you not taken an insurance policy.

2. Intimate claim immediately. While most companies accept oral intimations, you are safer with written

communications since this is a condition under the policy. Non-intimation can prove very costly

Losses have a bearing on the insurers profitability and hence funds have to be provided for. When youintimate a claim late no financial provision may be made for your claim and therefore it is will b

difficult to settle. Such claims are subject to scrutiny and queries within the insurance companies and

are likely to be delayed. Similarly, when you intimate a claim for a smaller amount and want to claim a

larger amount at a later time, the scrutiny ensures delays. It is better to avoid both of these.

3. Even if the loss at first sight is less than the excess, it may be prudent to inform the insurer. If the tru

value of loss is found to be much more on fuller investigation, the lack of intimation to the insurer (a

that stage) will not come in the way of settlement of the claim.

4. Submit the documents asked for, at the earliest. It is best to consolidate the documents and submit themin one bunch. This will save both your time as well as the insurers time. A covering letter listing o

numbering the annexed documents is prudent. In large organizations your papers travel through many

hands and it is quite possible that something is lost in official transit. If possible, get an officia

acknowledgement on your covering letter from the organization concerned. This will strengthen you

hands if you have to resort to grievance mechanisms.

5. Cooperate with surveyors or other representatives of the company. They may want to take photograph

or interact with various people in your organization.

6. Preserve recovery rights: If any other person or entity can be held responsible for the loss under lawyou should lodge a monetary claim with them within statutory time limits. You are not to waive o

surrender these rights since you are insured. On settling your claim, your insurer will take over thes

rights.


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7. If the insurer settles your claim for a lesser value than the loss but is able to recover an amoun

exceeding his settlement to you, he has to pay the excess to you. If your insurer settled the claim by

applying the principle of average, you are supposed to share the loss or the later recovery with the

insurer in the same proportion. Thus, if after settling the claim with you, the insurer is able to recove

something out of the salvage (or otherwise), he is supposed to share it with you in the same proportion

in which the insured and insurer shared the loss. It is prudent to keep note of this and ask your insurer

for your share in recoveries.An interesting addition to this case is that if the courts award interest from the time of loss to be

recovered from the third party, you are entitled to the interest till the date of payment of your claims to

you by the insurer. The insurer would be entitled to the interest for subsequent period.

8. Not lodging a monetary claim on others will jeopardize your claim. Even if your insurer settles you

claim it may be greatly reduced. All you have to do is send a letter under registered post to the person

or entity concerned and hand over a copy to your insurer. The letter should clearly ask for the loss to be

compensated. A small letter could save you from substantially losing a claim.

Some other dos and donts:

Besides what is stated above there are some things which you should do in some specific cases:-

Events Suggested Action

Fire

Liability claim

Act of God claims

Death

Criminal actions such as burglary,

actions resulting in death or injury or

accidents where third parties are

involved.

Correspondence with insurance

company

Salvage

Where third parties are responsible for

the loss.

In all cases of losses

Intimate fire brigade.

Do not respond to claimants without written approval of

insurers.

Get meteorological report.

Obtain death certificate & post-mortem report where done.

Inform police. Lodge F.I.R

Quote claim number/file number if allottes.

Preserve salvage.

Lodge claim on them.

Do not repair or alter anything without the insurers consent.


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General insurance : QUESTIONS and ANSWERS

WHAT IS A CLAIM?

A claim is a demand for performance of the promise made by the insurer at the time of making the contract.

These would differ under each policy. The insurer should find out: Policy holder has performed his part.

Insured event has taken place.

Who are the persons entitled to demand performance. Nomination/ Assignment/Income Tax

Notice/ Prohibitory Orders /Official Assignees Notice.

Maturity Claims= Sum Assured + Bonuses (if any) - Loan and Interest

Or

Outstanding Premiums

The Date on which the Term is complete is the date of maturity and settlement of Sum Assured on thatdate is called Maturity Claim Insurer usually sends advance intimations regarding the maturity of the

policy

The insurer has to satisfy that There are no Assignments ,The identity of the Policyholder is proved,

The Age stands admitted,The premiums are all Paid(Not Required for a paid up policy, The original

policy is handed in, The discharge voucher is duly completed.

The insurer is expected to make payments on the maturity date

Post dated cheques are sent in advance after the duly signed discharge voucher is received

Difficulties encountered in settling the claim

The original policy is reported lost, The claim can be settled by taking an indemnity bond and a copy o

advertisement in the newspaper

The policy is covered under MWP ACT The policy proceeds will be paid to the trustee or to the

beneficiaries if they are competent to contract

The policy is under Absolute Assignment The payment will be made to the assignee. In case of

conditional assignment if the title has reverted to the life assured he can also receive the payment

directly

IRDA Regulations

The insurer should ask for all requirements in the case of a claim at one time and not piecemeal

The decision to admit or to repudiate should be made 30 days of receipt of papers

If an investigation is necessary ,it should be completed within 6 months

Interest at 2% over the bank rate will be payable for the delays in settling the death claims

Interest at the savings Bank rate will be paid if the insurer is ready to pay but the claimants are notready to collect


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What is insurance?

We face a lot of risks in our daily lives. Some of these lead to financial losses. Insurance is a way of protecting

against these financial losses. For a payment (premium), an insurance company will take the responsibility o

compensating your financial losses.

What is general insurance?

Insuring anything other than human life is called general insurance. Examples are insuring property like hous

and belongings against fire and theft or vehicles against accidental damage or theft. Injury due to accident o

hospitalization for illness and surgery can also be insured. Your liabilities to others arising out of the law can

also be insured and is compulsory in some cases like motor third party insurance.

Why should one insure?

One of the main reasons one should insure is to protect ones belongings and assets against financial loss

When one has earned and accumulated property, protecting it is prudent. The law also requires us to be insured

against some liabilities. That is, in case we should cause a loss to another person, that person is entitled tocompensation. To ensure that we can afford to pay that compensation, the law requires us to buy liability

insurance so that the responsibility of paying the compensation is transferred to an insurance company.

Who should buy general insurance?

Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each

one of us can insure our and our dependents health and well being through hospitalisation and persona

accident policies. To buy a policy the person should be the one who will bear financial losses if they occur

This is called insurable interest.

What kinds of policies are there?

Most general insurance policies are annual that is, they last for one year. Some policies are given for longe

periods like fire insurance for residences and some for shorter periods like insurance for good

transportation or for emergency medical treatment during foreign travel.

How much should I insure for?

The amount you insure for is called the sum assured. Normally a policy should cover the value of the asset

either the market value while insuring, or the cost of replacing the asset should it be lost or destroyed. Th

premium will depend on the sum assured.

Can I take two policies and get claims under both of them?

In case of an indemnity cover (one that seeks to compensate the actual loss )--for instance, a policy that cover

property, if there are two policies in vogue, the loss shall be shared by both the policies. In no case can a


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insured get more than the actual pecuniary loss he or she has incurred. On the other hand, in respect of benefi

policies like the Personal Accident policy, where a fixed compensation is paid, no matter what the actual loss i

, one may obtain more than one policy.

On what basis is claim paid?

In indemnity policies, the upper limit of a claim is the sum assured and this usually applies for the period of thpolicy. Certain policies, however, allow for reinstatement of the Sum Insured by payment of proportionat

premium for the remaining period of the policy. The actual claim will be the actual extent of financial loss a

validated by documents like bills. If the property is underinsured, the insured shall bear a rateable proportion o

the loss. There can be more than one claim in the policy period but the sum assured is usually the limit for th

policy period unless reinstated.Nowadays health insurance policies which cover hospitalization costs hav

also a cashless settlement of claims. That is, you dont have to pay for the treatment at the hospital and then

make a claim for reimbursement of the expenses. The insurance company has a service provider called the

third party administrator (TPA) health services, who liaises with the hospitals and directly makes the paymen

for your treatment as per the terms of your policy and coverage.

Why do different people have different premiums ?

The premium is calculated on the extent and nature of the cover you want. A higher sum insured means a

higher rate of premium. Similarly a higher risk will be charged a higher premium. An example of this is that a

older person will have to pay a higher premium for health insurance for the same sum insured. Sometimes the

risk is higher depending on the location of risks for example in motor insurance in areas where accidents are

higher. So the premium will vary according to the nature and severity of the risk.

If I buy a policy and dont make a claim, it is a loss. So, why should I buy insurance?

General insurance is not meant to be for savings or investment returns. It is meant for protection. What yopay for is the protection against a risk. To approach it as something from which returns should be obtained i

not the correct approach as there is a price to pay for protecting a property worth lakhs for a few hundred

rupees.

If there are problems with claims what can I do?

First you should write to the company and give them sufficient time to respond suitably. If they dont respond

or it is not a response satisfactory to you, then you can approach the appropriate judicial channel. Fo

complaints relating to personal insurance covers upto a value of Rs.20 lakh, you may approach the Insuranc

Ombudsman in your area.

ARTICLES

1. Business of Claims inconvenience regrettedBy ARMAN OZA(irda-sep08)


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Instances of repudiation of claims on flimsy or merely technical grounds make things worse. Even if su

instances are few in number, they gather wider publicity thus tarnishing the credibility of insurers in gener

Outright rejection of a claim should be rarest of the rare case (like cases of fraud, etc.). In India, insurance h

remained a subdued activity till recently.

On the life side, aggressive marketing of endowment policies has built a public perception of insurance as

investment and tax savings tools only. The non-life side till recently was dominated by compulsory mo

insurance. The broader role of insurance as a risk management tool is neither known to the consumer, nor hthere been any effort to educate him on these lines from the industry. As a result, while products keep selling, t

concept underlying that product always remains obscure.

Thus an endeavour on addressing the fundamental issue of improving the risk consciousness of the populati

also needs to be undertaken along with other measures to expand the market. Without this the prospects f

robust market growth will always remain elusive. Leaving the nave customer to the mercy of market forces a

learn bitter lessons on his own, would also not be a considerate way of developing the insurance market. Only

reasonably risk literate population can deliver sustainable demand for financial services. To attain t

long term objective, IRDA in collaboration with other financial service regulators should encourage mark

players to undertake better risk education in schools and colleges so that at least the next generation is mu

more aware about risk and insurance. In the short run, alongside investment friendly steps like increasi

Foreign Direct Investment (FDI) limit to 49%, regulatory tightening that ensures better accountability of insurtowards their customers is also required.

The current trend however, is towards bracing big volumes. Glossy advertisements and celebrity endorsemen

portray insurance as a quick fix solution to all your financial problems. Insurance is a subject matter

solicitation the statutory message displayed in small font, if at all, hardly makes any sense to the consum

Selling insurance products over the counter just like any other commodity only aggravates the chances

deception at the point of sale.

Tie-up sales of insurance with loans and credit cards, ensures lower transaction costs for insurers but al

deprive the insured of his right to take informed decisions. Claims handling by general insurers is likely

become stricter as de-tariffing puts margins under squeeze. All this, however, does not mean that the consum

should refrain from buyinginsurance. Modern world poses diverse and complex risks, which the average citiz

can hardly afford to retain. The solution lies in showing finesse while shopping for insurance and determinati

in pursuing claims. It is ultimately up to the consumer to navigate across the vying marketplace, see through twily promotional vibes and spot the right product that serves his needs in times of distress. The seeming

clichd maxim of caveat emptor continues to apply.

2. Repudiation of Claims-- WHAT TRIGGERS THEM?(irda-sep08)By- SANJAY SETH (The author is Head Claims, IFFCO Tokio General Insurance Co. Ltd.)(irda-sep08)

Repudiation of a contract means a refusal to perform the duty or obligation owed to the other party to refuse to

accept something or someone as true, good or reasonable. In the context of insurance contracts, the decision to

avoid the contract is then made by the insurer. The insurer needs to notify the insured of that decision and th

intention to rescind the contract. In the context of rejection of a claim it is confusing to use the term

repudiation to describe the insurers conduct. The use of the phrases repudiation of aclaim and repudiation of liability are common in the insurance industry. The better terms are rejection of a

claim and denial of liability.Insurers may refuse to pay claims for a variety of reasons. As all insurance i

an agreement (contract) between the

insured and the insurer, the insurer will always rely on the insurance agreement, which is contained in:

i) The Schedule of insurance, read together with


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ii)The Policy

Some reasons that insurer may offer when rejecting (refusing payment) a claim are:

False statements made when applying for insurance;

Failure to disclose relevant facts when applying for insurance;

Claim does not fall within the items insured under the policy;

Failure of the insured to comply with the terms of the agreement;

Fraud; Inordinate and unreasonable delay for the reporting of the incident which may lead to a claim;

Failure to pay the premium on time/ at all;

No consequential losses covered under policies;

3. Effective Claims Settlement Procedure -- Need of the Hour(irda-may06)By - Antony Jacob. (The author is Managing Director, Royal Sundaram Alliance InsuranceCompany Limited.)

Today all insurance companies would strive to achieve excellence in these areas, I would like to focus on three

areas, which pose a major challenge to the claims function.

- Catastrophe management

- Frauds- Litigation

The Core objective of an insurance company should be to optimise a successful, effective and realisti

approach to claims handling that will save your company money and increase profits. From the insurance

company's viewpoint, claims management is a key

element in the competition between insurance providers and for the improvement of industry's public image

There is room for improvement in this area of client service and some companies have already demonstrated

this with international certifications like ISO 9001 for their claim processes. The need of the hour is to codify

the "Best practices" to guide both the insurers and the customers.

4. Prompt Claim Settlement- The Success Mantra) (irda-may06By- Swaraj Krishnan. (The author is Head - Claims, Bajaj Allianz General Insurance)

The customer service begins with claims settlement and need not necessarily begin with the policy issuance

Claims settlement plays an intrinsic role in providing a whole consumer centric insurance solutions. You could

to certain extent, cherry pick the business that you want to underwrite in line with your underwriting policies

but not the claims, which has to be paid.

-Process changes

-Use of technology

-Transparency

-Payment of claims

-Natural calamities, an opportunity

-Pro-active approach

-Claim analysis and link to Risk Management / Underwriting-A Holistic Approach to Claims

5. Handling Claims - The Dharma of the Insurer(irda-may06)By- Yegnapriya Bharath


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For a claim to be processed smoothly and quickly, the insurer should ensure that its claims handling staff are

skilled and knowledgeable avers.It is also important for the claims handling staff to have good communication

skills. The job requires tremendous patience. The insured has just had a loss. He is bound to be agitated. At a

time when he is dogged by worries due to a financial loss, he might not pay full attention to claims procedure

and documentation requirements. It requires special skills to get the insured round to meeting with th

requirements for a claim since, from the insurer's point of view, every document and procedure is important.

Many a time, delays in claims disposal are a result of defective policies rather than due to inefficiencies in thclaims handling system. A claim may reach a deadlock because of a policy wrongly underwritten. Insurers tend

to sit on such claims rather than arrive at solutions thus driving claimants to approach adjudication channels.

The innumerable complaints we come across indicate the need for a change in claims handling systems and

procedures. The boards of companies need to be involved in the claims management philosophy of th

company. The effectiveness of the grievance redressal procedure also needs to be monitored by not only th

senior management but also the board; and improvements effected wherever necessary.

6. Third party motor claimBy- G.S.Agarwalla (the insurance times, January 2005)

A group constituted by the IRDA has proposed fixing of motor insurance premium based on a combination of

risk profile- risk factor rating system. For de-tariffing motor insurance. for instance, an age-wise break up oover 2000 claims done by the group shows that in over 67% of the cases, the driver was below 35 years . in

contrast those aged 55 and above accounted for just 3% of the claims.

Mostly general insurance companies facing loss in third party motor insurance. Most companies are unwilling

to issue third party motor insurance.

7. Salvage as a Claims Management tool(the insurance times,january2008)

In our Indian general insurance industry, underwriter and adjusters manage the salvage process, relying on a

local market and tow or three bidders in their area. Loss can be mitigated by having got realized the maximum

possible realization value of the salvage.

In developed countries, salvors and salvage broker have been working with underwriters and adjusters. Ther

are more than 8000 salvage brokers in the united states.

8. Relevance of investigation and importance of written statement in motor third party

claim cases. By Abhishek kumar (the insurance times, sep 2005)Motor insurance is the biggest portfolio in the Indian general insurance market. Every year app 84000 people

die in accident and several suffer serious injures.

Points to be considered while preparing the written statement-

-as per the S.C. ruling in united India Vs asha rani compensation is to be assessd on net income.

-ascertain the dependency of the deceased.

- application under section-170of the M V act1988, should have been applied for and obtained as per the


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General insurance claims handling review

Speech by Alison Hewitt, Head of Department, Retail Firms Division, FSA

Post Magazine claims club meeting, London

17 March 2006

Good afternoon to you all and my thanks to Anthony for inviting me, once again, to speak at a Post Magazine

claims event.

In October of last year I gave an overview of claims handling from a regulatory perspective, outlined our

expectations of firms when handling the claims of retail consumers, shared with you some of our experiences

from supervision and informed you of our future thematic work in this area. I also said that claims handling is

the "Moment of Truth" for the insurance industry an opportunity to fulfil the promise made to customers to

pay a valid claim.

Today I'll be communicating our findings from the thematic work under the broad headings of liaison with

customers and systems and controls.

I should say at the outset that we are encouraged by the review findings and it seems firms have been able to

implement, without undue difficulty, the claims handling requirements in our new rules. We have seen a lot of

positive signs that firms are starting to implement Treating Customers Fairly initiatives into their processes and

procedures and we would encourage the industry to continue to make efforts to improve best practice

particularly in the areas we have identified.

Why a thematic review?

Claims handling is one of the main areas giving rise to complaints from consumers of insurance products. This

is perhaps not surprising given that when your customers make a claim they are likely to be in some form ofdistress and more sensitive to things not going the way they feel they should.

But the implementation of ICOB 7 together with the overarching principle of Treating Customers Fairly gave

us a foundation on which to ask industry, for the first time, for information on how it handles the claims of

retail consumers and to consider whether they are treating their customers fairly during the process.

As I am sure you are aware, the main purpose of ICOB 7 is to ensure that:

claims are handled fairly;

claims are settled promptly;

customers are provided with information on the claims handling process, and with an explanation of

why a claim is rejected or not settled in full, where relevant; and

insurance intermediaries disclose and manage any conflicts of interest that may exist.

This review covered the first three points. We have separately published material on conflicts of interest in a

Dear CEO letter in November 2005.


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Back to top

What we did & universe of firms

In November 2005, 34 firms completed and returned a questionnaire. My thanks to everyone who took the tim

to complete it.

The cross section of firms included in this survey is representative of the market, containing both large and

diversified multinationals, and small, niche players in terms of geography, customer base and product type.

The survey focussed on Buildings, Contents, Motor, Travel, Loan and Income Protection products.

We also conducted visits to seven insurers in December and January to ask more detailed questions than we

could in the questionnaire.

As well as reviewing firms' compliance with ICOB 7, this thematic work gave us the opportunity to ask

questions on fraud prevention, outsourcing and firms' use of MI. Taken together this has also enabled us to

reach some conclusions about how far firms' claims handling procedures are compliant with the regulatory

duty to treat customers fairly, or TCF as it has become more commonly known.

As I have said, we are encouraged by the findings from this thematic review, which are summarised in a

factsheet available from our website today. It seems firms have largely successfully implemented the

requirements of ICOB 7.

I will now go on to feed back on the main areas covered in the review, highlighting the key points we found.

Liaison with customers

Service standards and communication with customersWe are interested in firms' service standards as they give us an indication whether claims are being handled

fairly, settled promptly and whether customers are being kept informed of the claims handling process.

Positively, firms compared well against the guidance given in ICOB 7 around service standards. The large

majority aim to respond to notification of a new claim, deal with customer letters/emails and make payment

from the date of settlement each within 5 days. 31 firms reported that they always or nearly always meet their

service standards.

Where firms are not meeting their service standards, systems and controls are in place to identify reasons for

underperformance and address failure to meet them. Good news so far.

However, we received a low response rate, around 60%, when we asked firms for their service standard forupdating customers on the progress of their claim and there was no clear consensus of opinion from those who

did respond. It seems that firms often update customers 'as and when required' or 'depending on customer

expectations'.
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This is all very well, but can you be sure what is required or what customers' expectations are? Whilst a

proportionate approach to updating is sensible firms could be more proactive, updating customers periodically

rather than on an ad hoc basis. This is particularly important where a claim may take a long time to settle and i

part and parcel of managing customer expectations. It may seem obvious to you that a subsidence claim will

cover 2 summers and 2 growth periods before it can be settled, but this won't be obvious to a customer whose

only other experience of claiming on their household policy was for accidental damage to their TV which was

resolved within 10 days.

Back to top

Non- or part-payment of a claim continues to be an area where customers express dissatisfaction. This largely

stems from firms not providing customers with clear, jargon-free information about why their claim has been

rejected or not settled in full.

Firms report that they explain the reasons for this but customers are not always offered the choice of receiving

the reason for rejection or part-payment in writing. On one visit we found one claims area of a firm complying

with this rule with another claims area completely unaware that the rule exists. It is important that customers

are given the choice of receiving this information in writing. Reasons for repudiation may be too complex orlengthy to adequately give over the phone. Customers are unlikely to feel that they have been treated fairly if

you are not prepared to offer this information in writing.

Keeping customers informed during the claims handling process and clearly explaining the reasons for

rejection is a simple way to make customers feel that they are being treated fairly and prevent complaints being

made.

We asked what the most common reason for the rejection of a claim was since 1 January 2005. 19 firms

reported that the most common reason was the claim being outside scope of cover.

We are surprised by the response to this question. Why are your customers claiming for things not covered by

their policy?

I refer back to our review of general insurance disclosure documentation last December, in which we

highlighted the need for you to consider a review of your product disclosure documents, to ensure that

customers have clear and understandable information about the products and services being offered. For

example, have exclusions been highlighted satisfactorily; are policy conditions unnecessarily complex and

difficult to understand? Additionally, are the features of the product clearly and fairly reflected in the

marketing material in a way that customers can understand and does the sales process ensure that the product i

appropriate for the customer?

We accept that some claims are fraudulently made (on which more later). We also accept that there are sensibl

things customers can do to protect their own best interests when purchasing insurance products. Over time, we

hope to see more customers effectively using the material they have been given to inform their purchasingdecisions, which will lead to greater consumer understanding of the nature of the cover purchased and fewer

erroneous claims being made.

Rejected claims can provide firms with useful intelligence about how well their customers are served through

the lifetime of a product. It is good TCF practice to consider whether any steps can be taken to mitigate agains

the issue arising again in future.
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Complaints

Fair and efficient complaint-handling plays a key role in consumer protection, as mistakes happen in even the

best run firms. Complaints received should be seen as a valuable indicator of the effectiveness of a firm's

systems, pointing to problems in a firm's operations which need to be addressed. The need for regulatory

intervention is reduced when we can rely on firms' complaint-handling mechanisms to deal properly withconsumers who feel they have not been treated fairly.

Most of the firms we saw have a dedicated complaints handling team. There is the potential, where firms do

not have a dedicated team, that complaints are not logged and may not be adequately and impartially dealt

with. It is not optimal for any area to deal with its own complaints and gives rise to potential conflicts of

interest which need careful management.

We visited one firm which has recently introduced a dedicated complaints handling team and subsequently

seen the number of complaints increase. This is not because the firm has become any poorer in its dealings

with customers, but because all staff have been encouraged to consider complaints positively and more

expressions of dissatisfaction are being recorded as a complaint. Interestingly, although the number of

complaints has increased the average time taken to deal with them by the dedicated team has decreased.

We have said in the past that more efficient ways of handling complaints may mean that complaints go up in

the short term. This is not necessarily a bad thing and might indicate that a firm is treating its customers more

fairly. Under TCF, the number of complaints is less important than the way in which they are handled by firms

and how they then subsequently act. It is important that firms conduct effective root cause analysis of their

complaints MI and actively consider how they might improve their processes.

Systems and controls

A recurrent comment from firms was that ICOB 7 has made them formalise and document some of the things

already being done which had been a beneficial exercise for them in thinking through whether they do, in fact,

treat their customers fairly.

Staff

Many firms put their staff through a formal, claims specific induction programme, with a higher number giving

their new recruits a mentor and access to a technical specialist. This suggests that for some firms an ad hoc,

'pick it up as you go along' approach may prevail. In these cases, it may be more difficult for a firm to

demonstrate the competency of their staff if asked to do so. Whilst mentors or buddies are valuable training

tools, the mentor will have his own job to do and may not be able to devote sufficient time to give the new

joiner a proper grounding in insurance and product knowledge. One firm described this as "building

foundations on sand."

Most of you also include service standards as part of staff objectives. This can be a positive measure of howcustomers are treated. However, these service standards should not encourage staff to concentrate solely on the

volume of cases handled at the expense of quality. We see good industry practice where service standards

relate to qualitative as well as quantitative measures.


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Fraud detection and prevention

The reduction of financial crime is one of the FSA's statutory objectives. In addition, we aim to help retail

consumers achieve a fair deal. A recent ABI survey found that fraud on motor, travel and home insurance is

estimated to cost the industry around 1bn every year. Ultimately the cost of such fraud is borne not by

insurers but by consumers.Overall, we have seen good progress from the insurance industry in its response to tackling fraud. Initiatives

are being set up to spread good practice between firms and the Insurance Fraud Bureau, due to start operating

this year, will improve insurers' ability to detect and prevent organised insurance fraud.

Encouragingly, the majority of firms reported that they share data relating to fraud with other insurers in the

same market and use data-mining software, voice stress analysis or cognitive interviewing techniques in their

attempts to identify potential fraud. The majority of firms have also increased their anti-fraud activity and

spend and of those firms that increased their anti-fraud activity in the past year, 65% recorded an increase in

the amount of fraud detected.

A small number of firms surveyed (7) have no counter-fraud strategy and this was not confined to the smaller

firms in our sample. We will be going back to those firms.

Some firms seem to consider themselves immune to fraud, either because of the profession of their customer

base, or because the firm has a longstanding relationship with the policyholder and their families. Other firms

think that internal fraud is an impossibility because they are 'one big happy family' or because 'it just wouldn't

happen here', whereas in reality internal fraud is cited as one of the main threats to firms and is growing fast.

We expect firms to take reasonable care to establish and maintain effective systems and controls for countering

the risk that the firm might be used to further financial crime. In claims units good practice would be to

maintain segregation of duties so that claims handlers are not able to register, handle and authorise for paymen

the same claim.

A more detailed FSA review of firms' high level management of fraud risk can be found on our website in a

publication of the same name and we would encourage firms to continue to actively tackle fraud wherever theyfind it.

However, any anti-fraud activity must be balanced with the need to treat customers fairly. Some firms adopt an

anti-fraud strategy of invoking a 'proof of loss' clause, almost as a matter of course. Most people do not have

receipts for every item they have ever bought or that has been given to them. Most people do not keep

photographs of their valuable items. If production of receipts or photographs is a requirement for a claim to be

made then this should be clearly explained to the customer at inception of the policy and not used as a tool to

unreasonably reject a claim where there is no clear evidence of fraud.

Sometimes insurers will pay a claim but will not offer to renew a policy, again where fraud is suspected but no

proven. This is a valid contractual right that you as insurers have but an option that needs to be weighed agains

the knowledge that it will be very difficult, if not impossible, for the customer to obtain insurance cover again.


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Outsourcing

Outsourcing is increasingly used as a means of both reducing costs and achieving strategic aims and can be a

very effective tool in doing so. But it may also affect a firm's exposure to operational risk through reduced

control over people, processes and systems used in outsourced activities. It is worth emphasising that an

insurer cannot contract out of its regulatory obligations and should take reasonable care to supervise thedischarge of outsourcing functions.

Many customer complaints stem from poor service received from outsourced service providers. From our

review it seems that some firms only look at their outsourcers when something has gone wrong, by which time

customers may already have been disadvantaged.

From our review, 32 firms employ a third party to handle their claims but not all of these have a formal

reselection process and conduct regular audits. 20 firms have changed outsourcer/supplier in the last 3 years as

a result of their failure to meet key service standards - so problems are being identified, but we would

encourage firms to formalise their systems and controls in this regard through service level agreements and risk

management frameworks, focussing on:

the identification of quantitative and qualitative performance targets to assess the adequacy of serviceprovision to both the firm and its clients; and

the evaluation of performance and remedial action and escalation processes for dealing with inadequate

performance.

Formal reselection should keep outsourced service providers on their toes, driving competition and ultimately

better service to the customer and return to the insurer.

Conclusion

Overall, most firms we reviewed are handling claims well, and we are encouraged by our findings. We will

feed back findings to firms who took part in the review and continue to monitor claims handling performancein the industry through routine supervision work.

Thank you.