6. Claims Settlement

Understand claims settlement:

1. Describe the way that claims can be settled.

2. Describe why a full indemnity may not always be paid.

3. Explain how insurers can recover the cost of claims.

4. Describe the provisions of the Motor Insurers’ Bureau agreement for  

   untraced and uninsured drivers. 

     i. Article 75 Agreements.

Understand claims settlement:

Describe the way in which claims can be settled:

When a claim has been notified and assuming that all the parties have carried out their respective duties, all that remains is for the claim to be settled. It is the insurer’s option to decide how a claim will be settled. 

The four ways to settle claims are (usually referred to as Cash and the 3Rs):

          1. Payment of Money

          2. Payment for Repairs

          3. Replacement 

          4. Reinstatement

 a.  The payment of money directly to the insured is the easiest and most common form of settlement.

 b.   The is very commonly used for motor insurance (the insurer will use authorized repairers). An

        estimate would then be provided to the insurer who will then authorize same. If the repairs are

        extensive, an engineer would first inspect the vehicle. The invoice will be sent directly to the

        insurer for settlement less any policy excess.

  c.  The insurer can also arrange to replace damaged or lost goods. Mostly used for Glass Insurance, glaziers

      usually offer discounts to insurers. In cases of suspected fraud, insurer can choose this option for settlement.

 d. Reinstatement in the case of building and or machinery is yet another option for the insurer. This option is seldom

    used as it carries onerous obligations for the insurer who may have to incur costs above the sums insured to reinstate.

Key considerations and comments to be regarded when making settlements:

1. Replacement and Reinstatement ONLY apply when stated in the policy. If not, there must be a financial settlement 

2. Whichever method of settlement is offered; an explanation MUST be provided to the insured of the usual way such claims are settled.

3. There are circumstances where an insurer will pay (other than authorized repairers) someone else other than the insured under the policy. (hire  

    purchase company, mortgage company and a doctor) and,

4.  These details must also be explained to the insured before a claim is paid in order to comply with the FCA’s regulatory requirement  – The Fair

     Treatment of Customers.   

Surge Events:

        This is where an insured event causes a higher volume of claims than normal, placing greater demand  on the insurer’s claims  resources. Insurers are 

         facing an increasing number of these claims. Surge events are usually restricted to property insurance (there are other classes as well) as follows:

         1. A significant storm, a period of prolong rain leading to flooding.

         2. An exceptionally cold period leading to an increase in burst pipes.

         3. Volcanic eruption in Iceland in 2010 – Travel Insurance was affected due to ash cloud in the atmosphere , flights could not take off or land, hence

              widespread cancellation of flights across Europe. Think of the stranded passengers.

         4. Insurers must be ready for Surge events; it is not easy to predict when they can happen. Staff needs to be trained to deal with such happenings.

         5. The claims notification process needs to be adapted to deal with the increased number of claims without impacting the validation of claims.

         6. Surge events are often localized and in times of surges, insurers will proactively contact customers to see if a claim needs to be made.

         7. Insurer will also send staff to locate temporary offices, near the affected area for easier processing of claims for their customers. 

         8. In times of Surge, requesting documentation / quote for repair will sometimes be difficult. Photos or customer description  may be sufficient to

             validate the loss . This will be less acceptable in normal times.

         9. Insurers during these time will obviously prioritize ALL  the needs of  ALL customers.