Financial Services Authority
General insurance claims handling:
Factsheet for general insurers and
general insurance intermediaries
Chapter 7 of the Insurance: Conduct of Business sourcebook (ICOB) contains our rules and guidance on
claims handling and sets out a firm’s responsibilities when handling claims. ICOB 7 places responsibility
on the firm for ensuring 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.
Who should read this?
This factsheet is aimed primarily at general insurers1 who are responsible for the claims-handling process
even where they outsource claims related activities. This outsourcing includes cases where a firm gives an
intermediary authority to handle claims on its behalf. However, the rules in ICOB 7 also apply to insurance
intermediaries where the firm carries out an activity on behalf of a customer in connection with a claim.
What do we set out in this factsheet?
We carried out research to assess the extent to which firms handle claims fairly and settle them promptly.
We also reviewed firms’ use of management information and their control of outsourced service
providers. 34 general insurers participated in the research.
We set out some points arising from our research findings which firms may wish to consider in the
context of their approach to claims handling. These can be summarised under two main headings:
• liaison with customers; and
• systems and controls, including fraud prevention and outsourcing.
1 References to insurers apply equally to managing agents
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Liaison with customers
The overriding requirement in our rules is that an insurer must handle claims fairly and promptly and
should have appropriate systems and controls to ensure it can do this. An insurer must:
• respond promptly to a notification of a claim by a retail customer;
• keep the retail customer reasonably informed about the progress of the claim;
• notify the customer as soon as practicable whether the claim is rejected, accepted or accepted in part;
• explain why a claim is being rejected, or accepted in part and offer to provide that in a durable
• settle claims promptly.
With this in mind firms may like to consider the following:
• Most firms have developed service standards which fulfil the prompt and fair requirements. If they
are not meeting their service standards, firms should ensure they have in place appropriate systems
and controls to identify reasons for under-performance and address failure to meet them.
• ICOB 7.5.8R requires that an insurer keep the customer reasonably informed about the progress of a
claim. Some firms do not have a service standard for updating customers on the progress of their
claim. Instead they update customers ‘as and when required’ or ‘depending on customer expectations’.
There is an opportunity for firms to be more proactive here, updating customers periodically rather
than on an ad hoc basis and ensuring that customers understand the reasons for any delays. This is
particularly important where a claim may take a long time to settle. Keeping the customer informed
during the claims-handling process can prevent customers feeling that they are being treated unfairly
and can ultimately prevent complaints. Firms may wish to consider developing an appropriate service
standard when they review their responsibilities and plans under Treating Customers Fairly.
• Non- or part-payment of a claim continues to be an area where customers express dissatisfaction. This
can stem from the firm not providing clear, jargon-free information about why it is rejecting the claim or
not paying it in full. Although firms do explain the reasons for this, they do not always offer customers
the choice of receiving the reason for rejection or part-payment in a durable medium, in line with ICOB
7.5.13R(2). This is particularly important where the reasons for rejection are complex and/or lengthy.
• The most common reason given for rejecting a claim is that it is ‘outside scope of cover’. This may
indicate issues about product design and information – are policy conditions unnecessarily complex and
difficult to understand? Are the features of the product clearly and fairly reflected in the policy summary
and marketing material in a way that customers can understand? Is the scope of the product being made
clear to customers in the sales process? We have provided feedback on the quality of policy summaries
in a ‘Dear CEO’ letter dated 2 December 2005: www.fsa.gov.uk/pubs/ceo/gi_disclosure.pdf
• Fair and efficient complaint handling plays a key role in consumer protection. The complaints a firm
receives should be seen as a valuable indicator of the effectiveness of a firm’s systems, pointing to
problems in that firm’s operations which need to be addressed. Not all firms have a dedicated
complaints-handling team. Where a firm does have a dedicated team we have seen, in some cases, the
number of complaints increase. This is because staff have been encouraged to identify complaints,
consider them positively and deal with them promptly – reducing the time taken to resolve them.
• Where firms do not have a dedicated complaints handling team, there is the potential 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
require careful management.
• While the majority of firms in the sample identify complaints trends, not all undertake root cause
analysis of why complaints are occurring, escalate those issues to firms’ senior management and
implement appropriate remedial action to inform and improve the claims-handling process.
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Systems and controls
It is a fundamental responsibility of firms to have appropriate systems and controls in place to manage
their business effectively. We found that most firms have reviewed their claims-handling systems in the
light of ICOB 7 and have taken steps to formalise and document processes. We would draw attention to
• Most firms put their staff through a formal, claims-specific induction programme. Others adopt an ad
hoc approach, expecting staff to gather experience and knowledge on the job through a mentor or
‘buddy’. It is not clear how those firms would demonstrate the competency of their staff. While mentors
are a valuable training tool, the mentor will also have their 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.
• Most firms include adherence to service standards in staff objectives. While this can be a positive
measure of how customers are treated, firms should take care to ensure this does not encourage staff
to concentrate solely on the volume of cases handled at the expense of quality.
• Reducing financial crime is one of our statutory objectives. We expect firms to take reasonable care
to establish and maintain effective systems and controls to counter the risk that a firm might be used
to further financial crime. Some firms still do not have a counter-fraud strategy; some consider
themselves immune to fraud. This is either because of their client base or because they cannot even
contemplate that any of their employees are involved in fraud.
• Most of those firms undertaking anti-fraud activity have seen an increase in the amount of fraud
detected and a large number share data with other insurers in the market. Firms are improving their
data mining abilities by sharing information and are using cognitive interviewing techniques when
dealing with customers.
• For claims units, good practice would be to maintain segregation of duties so that claims handlers are
not able (as we saw at some firms) to register, handle and authorise payment for the same claim.
Where this is not possible due to the size of the firm, we would expect a firm’s internal audit function
to be sufficiently robust to be able to check systems and controls with a view to preventing fraud.
• Many customer complaints stem from poor service received from outsourced providers. Insurers
cannot contract out of their regulatory obligations and should take reasonable care to supervise their
outsourced providers. Some firms only seem to review their arrangements with outsourced providers
if something goes wrong – when, potentially, customers have already been disadvantaged.
• Many firms do not have a formal process for reviewing their outsourcers’ performance against key
performance standards. This is despite the fact that many firms have changed outsource providers in
the last three years because they failed to meet service standards.
• If firms do not audit outsource arrangements they may be incurring unjustified costs which will
ultimately be borne by the consumer. Formal re-selection procedures would keep outsource providers
on their toes, drive competition and – ultimately – provide both a better service to the consumer and
return to the insurer.
Reminder for general insurance intermediaries
When acting for customers, insurance intermediaries must exercise due care, skill and diligence. They
must also disclose and manage any conflict of interest. We have issued guidance relating to intermediaries
and conflicts of interest in a Dear CEO letter dated 18 November 2005.
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