Regulation of Claims handling

Two organizations who regulate the financial institutions:

1. The Prudential Regulations Authority (PRA) is part of the bank of England and is responsible for

          the prudential supervision of – Banks, firms investing on the stock exchange and Insurers

1. The Financial Conduct Authority  (FCA) – is responsible for the regulation of intermediaries as well as smaller

         firms and the market conduct of all firms.

1. The above two organizations have different objectives and operate separately, but they work together and share

        information.

1. The Insurance Conduct of Business Sourcebook (ICOBS), sits under FCA which sits under the FCA body is 

         responsible  for Claims Handling standards:-

1. The insurer is still responsible for claims handling even if they have outsourced this role to third parties.
2. The main purpose of the rules is that customers are treated fairly, claims handled fairly and settled promptly. 

            iii. Customers are kept informed about the claims in process

1. Conflicts of interest are handled without any detriment to the policyholder
2. The rules make a distinction between consumers and commercial customers (non consumers)
3. In respect of both categories, insurers must not unreasonably turn down claims. 

               vii. Insurer or an intermediary must manage conflicts of interest. eg: Motor or Liability policy, claim with several

                   parties whether insureds or not.

               viii. In respect of consumers, ICOBS does not allow insurer the right to avoid a claim for innocent misrepresentation, there is

                   no qualifying misrepresentation under CIDRA 2012. However, where fraud is involved, insurer can deny claims.

1. In respect of breaches warranty or conditions, insurer cannot deny a claim unless the circumstances  of the claim is

                   connected to the breach.

1.   Insurer must provide reasonable guidance on how to present a claim as well as progress on a claim
2. Once terms are agreed, claims should be settled promptly.

               xii  ICOBS require firms to retain records, for its own business reporting, the FCA and such information to deal with clients queries /complaints 

 

Consumer Insurance Disclosure and Representation Act 2012 (CIDRA 2012):

 

1. Prior to CIDRA 2012, the MIA 1906 was the leading legislation which required all sellers and buyers of insurance to act

         with utmost good faith and disclose all material facts to each other. 

 

1. Material facts are facts which will influence the minds of a prudent underwriter whether to accept a risk or not and on 

         what terms. This was burdensome on proposers as they were required to know what the insurer wants to known.

 

1. The position is now changed. Proposers are now grouped as Consumers (CIDRA 2012) or Non-Consumers (IA 2015)

 

1. Under CIDRA 2012, consumers are only required to answer the questions posed by insurers and to take reasonable

         care not to make a misrepresentation. This has removed the previous duty via Utmost Good Faith.

 

1. Qualifying Misrepresentations for CIDRA 2012
2. deliberate or reckless – consumer knew that it was untrue or misleading or new that it was relevant to the insurer

                but did not care. (Insurer may avoid the contract)

1. Careless – it was not deliberate; in this case the insurer has many options as follows:
2. If insurer would not have entered the contract, it can do so but must return the premium.
3. If insurer would have entered contract on different terms, it can treat the contract as though they are                                   
4. If the insurer would have charged a higher premium, it can reduce any claim proportionately

Insurance Act 2015 (IA 2015):

1. The MIA 1906 was amended by the above act, requiring non consumers to act with Utmost Good Faith in dealing with

         each other. Note 3 changes to insurance law under the IA2015:-

1. The pre-contractual duty of disclosure and the effect of misrepresentation at that stage.
2. The effect of warranties contained in that policy                                    
3. Insurer’s remedies for fraudulent claims (Please also note these ALSO apply to consumers under CIDRA 2012)
4. The act also made wide ranging reforms to the law making it harder for insurers to deny paying a claim due to

           technical breaches.

1. The duty to volunteer information is retained from the MIA1906, meaning Utmost Good Faith still applies.
2. Duty to make a FAIR PRESENTATION OF THE RISK, a new duty was created here which means:- 
3. The proposer must disclose every material circumstance which the insured knows or ought to know or
4. Provide the insurer with “sufficient information” to put a prudent insurer on notice that they need to make 

                          further enquiries into those circumstances.

3. The disclosure must be in a manner that is reasonable clear and accessible to a prudent insurer.
4. The disclosure must be substantially correct
5. Cannot dump undigested material on the insurer.
6. Actual knowledge and Constructive Knowledge is also required by the proposer as it is information which is

                          known or aught to be known by the proposer who becomes the insured.

1. Actual Knowledge – Information known by the individual or deemed to be known by any person who is

                                       responsible for the insured’s insurances. For example, a broker.

1. Constructive Knowledge –  In respect of Organization, disclosure is required from anyone who may be

                                        responsible for the company’s insurances for example a risk manager.

7. In like manner, the insured is not required to declare any facts the insurer knows via the underwriters.

 

Insurance Act 2015 (IA 2015) cont’d:

1. The above ACT states an Insurer aught to know anything :-
2. The Employees or Agent of the Insurer knows / aught reasonably to have passed on to the underwriters.
3. Where the relevant information is already held by the insurer and is readily available to the individual
4. An insurer is presumed to know:-
5. Things that are common knowledge
6. Things which an insurer offering insurance of the class of business aught to know, eg underwriting factors.
7.   Remedies for Non-Disclosure:- 
8.   Prior to IA2015 and under the MIA 1906, an insured could cancel Ab Inito for breaches of material facts if

              it can show that it was not ware of the fact. There need not be any claim in question, just the breach. 

1. The IA2015 has still maintained the insurer’s right to avoid the policy where fraud is involved.

         iii. Now, for Deliberate or Reckless breaches, the insurer’s options are:

1. For beach of Fair Presentation of the risk – Insurer can avoid the policy in its entirety 
2. If the insurer can show, had they know the circumstances , they will not have offered cover.
3. The Insurer can keep the premium

          iv:  For Innocent or Careless breaches, the insurer’s options are:

1. The remedies provided under the act for the above are less severe, they will be based on what the

                      insurer would have done, had they known about the information which has come to light.

1.   So, an insurer can avoid a policy in total if they can show that they would not have entered into a contract.

The Enterprise Act 2016 (EA 2016):

1. The EA 2016 amends the IA 2015 by making provisions for late payment of claims by insurers as follows:
2. It is an implied term in any insurance policy that sums due must be paid in a reasonable time.
3. Reasonable time includes time to investigate and access the claim.

              iii. What is reasonable considers all circumstances such as, size, complexity, regulations, delays by client.

1. The insurer will not be in breach by genuine disputes of the claim.
2. Breaches will result in the insurer paying, the claim, interest there on as well as a sum for damages.
3. The EA2016, became effective May 2017 and applies to CIDRA 2012 as well as IA 2015.

Disputes & Complaints:

1. Regulated firms are required to appoint a senior person or director as the responsible Complaints  Officer.
2. The published complaints relates to insureds and not to third parties. 
3.   Disputes between Insurers and third parties are be resolved using other methods or litigation is usually the final option.

 

First Party Disputes:

        

Financial Ombudsman Service (FOS) is a free, independent and impartial service that deals with unresolved disputes. Membership is compulsory for all authorized firms including intermediaries.

1. FOS full terms etc. can be found in FCA Handbook / Dispute Resolution: Complaints DISP sourcebook
2. FCA requires all firms to have a written complaints procedure.

            iii. The FOS only deal with complaints from eligible complainants such as:

1. Consumer
2. Micro enterprise with 10 or less employees, turnover or balance sheet total Euros 2 mill or less.
3. Charities with an annual income of less than £6.5 million 
4. Trustees or trusts with a net asset value of less than £5 million
5. Buy to Let Consumer
6. Small businesses with T/O less than £6.5 million & 50 employees max, and a balance sheet of £5 million
7. Guarantors
8. Before approaching the FOS, all internal options should be exhausted with the insurer or intermediary
9. Any legal proceedings must be withdrawn before approaching the FOS.

Disputes & Complaints cont’d:

Financial Ombudsman Service (FOS) Cont’d

1. The complainant can refer their disputes as follows:
2. 6 Months after you have received the insurer’s final letter of refusal.
3. 6 years after the event companied about.

             iii. 3 years after the complainant knew or should have know that they had a cause for complaint

1. After the above dates, it will be TIME BARRED hence insurers can object to being bound to comply.
2. Exceptional circumstances will be for Pension Transfers and opt outs. .
3. It will be considered a contempt of court NOT to provide documents as requested by the FOS

              vii. All authorized firms must cooperate with the FOS

              viii. FOS must investigate and aim to reply with 3 months, most disputes are settled by mediation or adjudication 

1. Both parties have a right of appeal to viii above, in this case one of the Ombudsman will make a final decision.
2. The FOS is not bound by law or legal precedent and will make decisions based on the merits of the case. 
3. The aim is to ensure customers are treated fairly; hence the law cannot be used to avoid a payment.
4. Redress can be in two ways:
5. A money award, all authorized firms are BOUND to meet claims ONLY up to £355,000, limit since April 2020
6. A “directions award”, telling the firm what action it needs to take to put things right for its customer.

c. Funding:  The FOS is funded by a levy on all authorized firms. A case fee is paid by the complainant.

Arbitration:

1. This is a policy condition where should an insured be unhappy with the AMOUNT of a claims settlement,

            the requirement is to go with the insurer behind closed doors to resolve same. This disagreement is

            called a disagreement in respect of Quantum (not liability under the policy).

1. Insurers prefer Arbitration as against Litigation for the following reasons:
2. It is private, less exposure unnecessarily, protection of reputation from negative publicity 
3. It is usually more expensive than Litigation
4. The judge may have no particular expertise regarding the matter in dispute.
5. If the insured does not agree to the insurer’s arbitrator, they can appoint their own and a third (umpire)

            will sit in chair.

1. Arbitration also called tribunal, should be fair and impartial and listen to both side in this manner.
2. The Arbitrator has the same powers as a court of law to instruct a party to act or refrain from a certain action, or specific performance or even rectification
3. The Arbitration Act 1996, confers powers on the action and processes