A claims handler has an important role to ensure for each case, the reserves are adequate (this does affect the global
reserve). Different companies, have different strategies but it is important to know what these are (found internally).
Reserves are required for ALL aspects of the claims including:
a. damage to property (either own or third party)
b. damage for personal injury (general damages)
c. third party special damages
d. legal cost (claimant and defence)
e. information provided by surveyors, adjusters, or engineers can assist in setting the correct reserve, eg. costings etc.
f. it is also important to consider policy or third-party liability issues when setting a reserve (split level payments).
g. reserves should be regularly review to ensure they remain adequate, reduced when payments made or increased if
extra information comes to light, or the claim becomes more complexed. E.g.: case heading to court, increased fees.
h. reserves are usually entered onto the system, broken down according to policy cover or section.
An alternative method of individual case reserving employed by some companies is factor or flag reserving. This is
where a factor is added to each claim rather than to a whole case reserve. Common in motor insurance or small
personal injury claims and is used to identify certain cases for trend analysis by actuaries.
Finally, a Standard or Factor reserve of say £1,000 would be added to every claim of a certain type (motor A.D.)
Invalid or Partially met claims (also referred to as repudiation):
a. Cover was never in forced – a claim is outside the policy period / own damage claim but only TP cover.
b. Breach of a material warranty – a theft occurred while the alarm was not set (materiality is V.I.)
c. Breach of a policy condition – conditions precedent to Liability, no payment, policy remains in force.
e. Fraud – if this can be proven, All Benefits from the Date of the fraudulent ACT will be forfeited.
The following terms and conditions may mean that a claim may be only partially met:-
1. A limit to maximum amount recoverable – Sums Insured / Limit of Liability
2. An Average Clause – penalty for underinsuring.
3. Compulsory excess or deductible , franchise limit
4. An ex-gratia payment
An insurance contract is one of indemnity. When the insurer provides an insured with an indemnity after a loss, under the
policy contract, they cannot also recover the same amount from the negligent party. At common law, an insurer can stand
in the shoe of the insured and recover from a negligent third party. They however must have already paid their client’s
claim. Insurers insert a policy condition called subrogation where they can start recovery while at the same time, they are
processing their client’s claim.
After an insurer has paid an indemnity to their client, any wreckage (as in the case of motor insurance) belongs to the
insurer. If it is then sold and the insurer recovers more than the indemnity payment, they can keep all of it. An Insurer usually
offers the client the option to retain the salvage which is deducted from the amount claimed. In cases of theft insurance, the
insurer keeps in touch with the policy authority, should the stolen item be recovered by the police, the insurer can
request same which will be used to reduce the insurers previous indemnity payment. For jewelry etc., the insurer can offer same
back to the insured but will require repayment of the claim.
This condition is meant to penalize the insurer for purposefully underinsuring, in order to save on
premium spend. It is sometimes referred to as the pro rata condition of average.
Formula: sums insured divided by value at risk or true value multiplied by the loss. The advantage of this
condition is mostly seen at times of partial claims.