VIEWS: 4 PAGES: 14 POSTED ON: 4/21/2012
ANALYSING INFORMATION INTRODUCTION A small claim, for example, minor storm damage on fire policy, could be settled on submission of a claim form and two quotations for repairs. On the other hand, a large fire loss on commercial premises may require the appointment of an independent loss adjuster to carry out the investigation. The live of investigation depends on the type of policy involved and the circumstances in each case. In this section, we will examine Why it is important to interpret policy wording carefully The role of specilists, and The problem of fraud After completing this section you should be capable of analysing and resolving insurance claims by: Deciding on the need for further information or investigation Assisting relevant parties Analysing information to decide for or against liability in accordance with the policy and company guidelines Completing the acceptance or rejection decision Informing the claimant of the decision Completing the relevant documentation Further investigation With complex claims there may be a need to collect more information or to further investigation the circumstance of the loss so that the liability and cost related to the claim can be established. Source of Information In trying to establish liability and an accurate estimate for the cost of a claim, there are many sources of information that can be called upon to provide input. These include: The customer and any third parties who may have caused or sustained damage as a consequence of the event The policy wording The loss adjuster Any other specialists appointed by the claims officer or the loss adjuster, and Trades people, repairers, suppliers A loss adjuster will: Inspect the damage Organize all the necessary trades people to provide estimates for that part of the work that they will eventually undertake Make contact with the insurers preferred supplier for materials and replacement items Call for other specialists to provide reports on aspects of the event, including suspected fraud. The claims officer or the insurer’s lawyer would probably appoint these specialists. Interpreting the policy Interpreting policy wording is very important in establishing the acceptability of a claim, and as part of the cost estimation. Most disputes arise out of the differing interpretations of policy wording: Covered or not ? One example of policy wording that, in the past, has led to disputes is the use of the term Current Market Value. Invariably, customers read this mean the price they would expect to pay for an equivalent item. Insurers, however, do not include the additional costs of warranties and profit margins in their interpretation of Current market value. There is obvious discrepancy between what the customer expects and what the insurer is willing to pay. In accordance with the Codes precription for clear language in all documents, there has been a lot of hard work done to improve policy wording. Some companies now use Agreed Value instead of Current market Value so that there can be no confusion. Another area of policy that can be contentious is that of Exclusion in home policies. As you have read in the Beacons’case, wooden fances are usually excluded from cover. Damage caused by flood is another common exsclusion. CASE STUDY – WATER DAMAGE In a recent case involving flooding in a large central Victoria city, some policyholders found that they were granted cover while others were not. Water damage caused by flood is usually excluded, whereas damage caused by storm water is usually covered. The definitions related to water damage used in most policies are : Flood, which is excluded, is caused by rising water likes creek bursting its bank Storm Damage is caused by water falling from ther sky, and it includes water not contained by the storm water system When specilist hydrologists were called in, they found that much of the damage to houses had been caused by the local council’s failure to prepare for flood – many of the storm water drains were blocked – and in some parts of the city this is what declared as the cause of damage. Those policyholders whose houses were damaged because of blocked drains, accornding to the hydrologists, received compensation. House in other parts of the city, which were damaged by water directly from the creek according to the hydrologists dod not receive any compensation. Insurer then sought to recover costs from the local council for damage that was deemed to be due to the blocked storm water drains POLICY WORDING AND COST ESTIMATES There are several clauses that might appear in a policy that will affect the ultimate value of a loss. These includes: Under insurance Over insurance Deductibles or special terms Reinsurance Underinsurance Underinsurance is where a customer fails to insure a particular risk for its full replacement value, and in so doing, creates a false economy in relation to the premium saved. Underinsurance is very prevalent in homeowners policies and in some cases has led to financial hardship for the insured where the house and contents have been lost to a fire or some other natural disaster If a customer is under –insured , they are considered responsible for part of the risk - as co-insurers. Co insurance clause normally appear in fire, and construction policies. Each policy contains its own ‘averaging’ formula for reducing the amount of the claim if there is under insurance A claim officer cannot rectify the problem of under insurance because when a claim is made, it is too late to advise the client that they are not adequately insured. The damage has been done! There are several reasons why a certain risks are under-insured and they are : The client is unaware of the real value of the asset to be insured and simply guesses at the value for insurance Clients do not realise that inflation has changed the repalcement cost of their assets and the sum insured should always be for repalcement value rather than the original purchase price Clients take out as much insurance as they can afford and in many cases this means that certain assets are under insured Some clients take the view that they are immune from disaster and don’t need to insure their assets for thei full value because if their house is damage by fire, it won’t be totally destroyed. Over Insurance OI also presents problems, this time for the insurer. If certain assets are over insured, it could result in excessive payouts being made by the insurer to settle claims. Insurers are very conscious of values and go to great lengths to ensure that clients do not over insure. Motor vechile insurers experience great difficulties when cars are over insured given the strong relationship between over insurance insured given the strong relationship between over –insurance and fradulant claims Deductibles or special terms If an item is subject to a deductible or special limit, or if the policy has been varied to embrace special terms or limitations, or if the policy has been endorsed to include special perils, these facts must be clearly recorded on the claim folder. Otherwise, errors and misunderstandings can occur. These may hinder a mutually agreeable adjustment of any loss Reinsurance Whether the claim is large or small, part of the risk may be reinsured. There are several types of reinsurance that may apply, depending on the level of protection purchased by your company, for example, facultative and catastrophe reinsurance. Facultative One type of reinsurance is called faculatative and it applies to losses over a pre-determined level on a particular policy. If we imagine a claim for $1 million building destroyed by fire, it could be better that the insurer provides the first $500k of cover and the remaining $500k is provided by the reinsurer. Catastrophe Catastrophe reinsurance is another common form of cover purchased by insurers and applies to all claims coming from a particular event such as as an earthquake of a bushfire. In these circumstances the total cost of all ciams associated with the event has to be established before a claim can be made on the reinsurers. Again, the insurer would always be liable for the first amount of the total cost with the reinsurer being liable for all costs over the aggregate of the insurers liability. A contract of reinsurance is a private matter between the insurer and the reinsurer company. The insured is not party to this contrcat and is not informed of this arrangement. More detailed information on INS 701 Subrogation The matter of subrogation must be considered when dealing with any general claim. If the event which occurred, and which is the subject of a claim, arose out of the negligence of a third party, the insurer has the right to stand in the place of the insured and to recover its loss from the negligent party –this is subrogation. This right arises after the insured has been fully indemnified, up to the limit of the indemnity under the policy. The Insurance Contracts Act qualifies an insurer’s right of subrogation. You should familirise yourself with the provision of Section_______ and ____ of the Insurance act. Specilists Loss adjusters or assessors are usually appointed where there is any possibility of a subrogation recovery. Any delay in dealing with this could weaken a case for recovery. If an immediate investigation is made, a sketch drawn, photographs taken (preferably by independedn specilists) and statement recorded, if possible in the form of statutory declarations, and faulty parts identified, ticketed and preserved, the information thus obtained can provide via evidence should any subsequest recovery claim be litigated. READ A ppendic 2 : Interpretating the policy for more information about terms and concepts contained in policy wordings CASE STUDY – MR & MRS BECON After recording the Becons Claim for damage that was caused by the neighbours tree falling on their garage and house, the nest step for the claims officer was to strike an estimate for the cost of repairs. Based on his experinece and knowledge of this particular claim, he added $20k to the claim reserve. His next action was to arrange for a loss adjuster to attend the premises and prepapre a detailed report of the damage, the likely cost of repairs to the garage and the house and recovery prospects. Mr Becon was asked to take his car to a crash repairer favoured by Progressive Insuranceand get quotation, and subject to an assessment, the repairs would be authorised as soon as possible. The appointed loss adjuster arrives at the house the following day and commenced to write his report by listing down all the visible damage to the garage, the house and the bike. He also observed that the remainder of the neighbor’s tree was rotten and he was concerned that further damage could result to both properties if the tree wasn’t attended to. The loss adjuster contacted a local surgeon to come and inspect the tree and provide an expert report for the insurance company. In addition he called upon the services of roof-tiller, a plasterer, an electrician and a painter to provide detailed estimates of the time and costs involved in fixing Mr and Mrs Becon’s home Recovery The recovery of claims costs from negligent third parties is a vital ingredients in total cost control and is unfortunately sometimes overlooked by many claims officer. A recovery action is available to an insurer in any situation where liability for the claim can be shared or apportioned to a 3rd party. This apportionment can be demonstrated by way of a few simple examples: Example 1 In motor vehicle accidents, particularly at intersections and in shopping centre carparks, there is almost always some fault attributable to both drivers. Where fault can be apportioned, the claim officer should negotiate the percentage of blame that is attributable to the 3rd party with the 3rd party insurer and seek recovery of the appropriate cost. Even if the ratio of blame is as little as 80/20, this still mean a considerable saving to your company. Furthermore, if this apportionment is achieved on all similar claims, the saving over a 12 month period will be substantial. Example 2 When domestic appliances are damage as a consequence of a power surge, insurers have the right to seek recovery of their claim costs from an electricity distributor/supplier. These actions are not always easy given that the power surge may have come as a result of a car accident with a power pole, an electrical storm, or a fault in the distribution network. Where there is evidence of a failure of duty of care by the electricity suppliers, a recovery action should be pursued by the insurer Example 3 Fire damage can also have recovery aspects associated with the claims, particularly if damage caused to a building is a consequence of a fire in an adjoining building. Once the fire investigators determine the cause of the damage, a recovery action possible against the 3rd party and their insurer. Example 4 Bush fires can also have recovery potential. The most notable case in this area was associated with the Ash Wednesday bush fire where some costs were ultimately recovered from the State Electricity Commission of Victoria [Aust] because some of the fires were proven to have been caused by faulty wiring. As you can see from these examples, recovery of claim costs is available in a wide variety of situations. Recovery actions are most often successful when negotiated directly with the 3rd party insurer, as this will bring a positive result much more quickly than proceeding through the Courts. In circumstances where a negligent 3rd party is not insured, as often happens in motor vehicle accidents, a Court judgment is often required to establish an installment payment plan for the recovery of the claim costs. Costs associated with legal liability are harder to ascertain given that the Court determines many such cases. An experienced claims officer would always consult the insurer’s legal advisers to establish an estimate of likely damages for all matters that will be contested in Court as well as for the legal cost of the action. The role of specialists In every field of endeavor, there is an increasing tendency to use the service of specialists. An insurance claims officer, however knowledgeable, competent or industrious, cannot expect to have the wide range of skills necessary to investigate and report on all claims, except of course the very small ones. The most important specialists used by insurance companies are loss adjusters and assessors. Some very large companies do employ their own assessors to evaluate claims. However, even large insurance companies appoint independent loss adjusters to investigate, assess and report upon contentious claims, large claims, or claims under policies which are co-insured with other companies. CASE STUDY – ABC BODY REPAIRS From the information gathered so far about the fire at ABC BR, the claims officer formed an opinion that there would be a significant damages bill for water and smoke damage and that a specialist loss adjuster should be appointed as soon as possible to investigate the cause of the fire, the costs of restitution and any potential for recovery. Robin Gibbon & Co. received written instructions via facsimile from PI an hour after Adi had reported the claim. They immediately scheduled one of their experienced consultants to attend the premises of ABCBR to prepare a preliminary report as to the cause of fire. They also contacted the Metropolitan Fire Brigade to request a copy of their Incident Report of the fire, which should provide valuable information as to the status of locks on gates and doors upon their arrival at the scene. The Fire Brigade report would also give the exact time that the alarm was triggered and their opinion as to the cause of the fire. Back at PI, the claims officer was in the process of working up the estimate for the claim. Based on the information to hand and his previous experience with claims of this type, the initial estimate input to the computer system had the following components: ______________________________________________ Building $ 50,000 Contents $100,000 Inventory $ 30,000 Public Liability $ 20,000 Customer Vehicle $ 30,000 TOTAL $230,000 ________________________________________________ Until more was known about the cause of the fire, the claims officer assumed that all policy conditions had been met and that the damage to customers’ vehicles would be covered under the Public Liability and Customer Vehicle section of the policy. The loss adjuster had arranged a time to see Adi at ABC BR the day after the claim was reported. Before making a thorough inspection of the premises, he asked Adi to complete a PI claim form and to record details of all circumstances surrounding the fire. It appeared that the fire had started in the 4 WD because: The 4 WD had been totally consumed by the fire Most of the other fire damage was to tools and equipments around the particular vehicle Damage to the other four cars was mainly on the side facing the 4WD. It consisted of scorched paint surface and some minor plastic melting Above the 4WD there was severe scorching on the ceiling A closer inspection of the vehicle convinced the loss adjuster that he needed some specialist help. He requested the services of Matt Rainer, a forensic engineer, and was given approval by the claims officer. Matt’s task was to determine the precise cause of the fire and report to the loss adjuster and PI within 3 days. Once his report was available, the claims officer could make more informed decision about the admissibility of the claim, and together with the loss adjuster’s report, a more informed decision about the estimate of costs. While the loss adjuster and Matt Rainer were completing their investigations, Adi Bedetta had engaged an electrician to inspect, isolate and repair all the necessary wiring on the premises. A contractor was also on the job repairing the front gate and the new roller-door was being installed. Ado’s staffs were cleaning down work bays, inspecting and checking equipment and generally assisting the loss adjuster with his task of compiling a list of damages for Progressive Insurance. Not surprisingly, Adi also contracted the owners of all the damage vehicles, the most difficult with the car dealer, who now owned a totally destroyed 4 WD. Adi did his best to reassure all the car owners that he was working as quickly as he could in conjunction with the insurance company to ascertain what was covered and what was not. Needless to say, all the owners indicated that they held ABC BR liable for the repairs to their vehicles. All the 3rd party contact details were forwarded to the claims officer at PI. Some days later, the claims officer received the Incident Report from the Fire brigade, which confirmed that the 4WD was the most likely cause of the fire. No other evidence was discovered in electrical switchboards or machinery circuits. There was also no evidence of the fire been having deliberately set, or accelerant used. The loss adjuster’s report also arrived on the same day, giving details of all the costs associated with the restoration of the building, tools and equipment. The one area of additional cost recommended by Robin Gibbons & Co. was to paint the concrete walls in the workshop, because the porous nature of the building material did not allow them to clean. There was also part of the report dedicated to the cause of the fire and the ramification associated with the negligence on the Public Liability section of the policy. The report also noted that the value of the 4 WD was $40k and the cost of repair to the other four vehicles would be $10k. Cover provided under the Customer Vehicles section of the policy was limited to $30k. Recovery opportunities were also dealt with. This part of the report was focused on aspects of negligence, all of which would be decided once the actual cause of the fire was known. Matt Rainers report finally a week after the fire at ABC BR. IN summary, the fire was caused as a consequence of water entering the ignition switch of the 4 WD when it was put through the carwash prior to being delivered to Adi. The subsequent corrosion formed a short circuit and the cables between the battery and the starter motor overheated and ignited. The fire quickly spread to the flammable liquids in the engine bay and soon the whole vehicle was alight. The impact of Matts report was that there was no negligence on the part of ABC BR and so PI Insurance would not required to provide indemnity under the liability section of the policy. Duties of loss adjuster and assessors Loss Adjusters and Assessors, although appointed and remunerated by their principals, (the insurer or underwriters), regard themselves as independent. It is their responsibility to: Thorough investigate the circumstances surrounding a claim Establish the amount/value of the loss, and Submit reports which will enable the insurers to determine the amount payable and in some cases, if the claim is admissible. The assessor or adjuster can make recommendations to his or her principal but, unless otherwise authorized, has no power to settle losses or decline liability The assessor or adjuster is in many respects a knowledgeable, impartial third party, whose main objective is to achieve a just and amicable settlement between claimant and insurer. This calls for tact and diplomacy. In the course of their investigations, the company or a loss adjuster may require the services of other specialists, who are usually appointed by the claims officer or company solicitor. Other specialist Many loss adjusters, in addition to the special skills that the profession demands, hold degrees in accountancy, commerce, economics, law or engineering. However, no one can be expected to be an expert in every field. Insurance companies often need the services of other specialists, for example: Investigators Accountant Engineers Architects Valuers Photographers Investigators In the course of enquiries, an adjuster will frequently encounter circumstance that leads him or her to suspect that a claim is fraudulent. In such cases the insurer may appoint a private investigator to make detailed enquiries. Private investigator, who must be licensed, might follow claimants, take photographs and sometimes videotape their activities, take written statements and make investigations as to the background and previous history of the person involved. The claims handler dictates the exact type of work. The type of work dependent on the type of claim and the circumstance of the loss. It is necessary to use people such as investigators or private enquiry agents to obtain evidence that might enable an insurer to repudiate bogus claims. This is obviously in the interest of other policyholders as well as the insurance company. Accountants Accountants have always played a very important role in a loss adjusting and have become virtually indispensable so far as consequential loss (business interruptions) and stock claims are concerned. Their ability to read and interpret financial accounts enables them to accurately quantified a loss and to detect inconsistencies with standard practice or industry trends. Computer fraud and embezzlement claims often call for an accountant’s expertise and many major loss adjusting firms now include qualified accountants as member of their staff. Engineers and Architects The many public authorities, which now play some part on the planning and execution of building projects, make it virtually mandatory to employ engineers and architects in every stage of major building repair work. Even the exact restoration of damage property can no longer be undertaken without due attention to the laws or regulations currently in force. Similarly, in dealing with claims for sophisticated plant and machinery (which can so quickly be rendered obsolete by advances in technology) the advice of engineering experts in the repair or replacement procedure is often advisable. Additionally, engineering advice may well be called for to determine whether all the damage included in a claim is directly attributable to the claimed peril. Valuers Most trained loss adjusters have a sound knowledge of values but sometimes disputes arise which could lead to possible litigation. In such circumstances, employing qualified valuer is a desirable step. Moreover, the importance of valuers cannot be overestimated when dealing with valuations of jewellery or work of art. Photographers Loss adjusters usually take photographs of scene relating to the claim that they are investigating, whether it is fire, burglary, storm or other vent, because of the reliability of photographs. However, when dealing with a material damage or liability claim, which is likely to involve litigation, the adjuster should appoint an independent professional photographer. As in the other fields of expertise, the professional photographer will produce a better result and will usually to accorded greater credibility in a legal environment. Others The specialists mentioned above are those most commonly used in claims work, but there are others. For examples: Chemical engineers may be needed to determine the extent of damage to delicate equipment by corrosive elements Forensic scientists may be needed to examine specimens in laboratory conditions to determine the cause of damage and its extent Electrical and electronic experts may be needed to advise on the reparability of fine and delicate equipment Mining experts may be needed to examine the viability of re-opening or leaving permanently closed an underground mine Investigators, assessors and loss adjusters Professional obligations Section 3.2 of The Code deals with the appointment of investigators, assessors and loss adjusters, This Section requires that: Insurers shall require investigators, assessors and loss adjuster acting on behalf of the insurer to : o Operate in a professional manner o Inform consumers of their status and the identity of the insurer for whom they are acting, and o Comply with the law and this Code Insurers should ensure that investigators, assessors and loss adjusters are not authorized by the insurer to act in matters that do not match their expertise…. Briefing guidelines The company guidelines will detail company policy and procedures on working with assessors and loss adjusters. Claims officers will need to : o Provide assessors and loss adjusters with accurate information before or during investigation o Interpret their reports and recommendations before making decisions about claims Ideally, adjusters should be provided with the following data at the time of their appointment: o Name of the client or other interested parties to the contract o Head office address o Name of the party to be contacted and the telephone number o Situation of the loss o Name of the insureds delegated officer handling the claim o Policy number o Claim number o Full details of the claim and the cover granted under the policy together with extensions, limits and type of cover, that is, indemnity or reinstatement or replacements. If reinstatement, whether the policy covers extra costs of reinstatement. o If the insurance is written on a schedule basis, the name of the other insurance companies involved and the proportion of the risk which they hold o Comments If full information is provided, it speeds the claim process, makes the task of the loss adjuster much easier and avoids unnecessary disputes with claimants. Report validation In many cases, a loss adjuster or other specialist who called in to assess a claim is someone well known to the insurer. From previous experience, the claims officer would have a level of confidence in the estimates provided for repairs or replacement of building and property. Nevertheless the claims officer should review any specialist reports that have been called for before authorities are issued for the repairs or replacement of damage items. It is also at this point in the management of a claim that proof of ownership is requested from their customers. It is not uncommon in claims for theft or burglary for customers to claim for items that were not owned by them or in their possession. The claims officer has to ensure that the items being claimed for were in existence before the alleged loss, and that the insured owned them. The most common form of proof required by insurers is a copy of a receipt or invoice for the insured article. This is of course is not always easy for the insured to supply, particularly if the insured article was purchased some time ago and may have been purchased for cash. Despite this, proof of purchase should be asked for and a reasonable decision reached as to the veracity of the claim. If there is any doubt held by the claims officer, the claim should be referred to the company investigator. The problem of fraud Unfortunately, a significant percentage of all claims lodged are proven to be fraudulent. An even greater number of fraudulent claims may go undetected by claims or investigation staff. Fraud has been defined as ‘criminal deception, dishonest artifice or trick’. It is an act that is designed to obtain unlawful gains, and it is punishable by law.
Pages to are hidden for
"ANALYSING INFORMATION"Please download to view full document