1. Claims management is the process by which Insurers fulfil their contractual obligation to policyholders. An Insurer's duties when a claim is made under a Contract of Insurance may be summarised as:
a. verify the contractual obligation to pay the claim;
b. make an assessment of the amount and incidence of the claim liability, including loss adjustment expenses; and
c. manage the claim settlement process.
2. The risk management system for claims management risk should normally include at least the following policies and procedures:
a. clear definition and appropriate levels of delegations of authority;
b. clear claim settlement procedures, including claim determination and investigation procedures and the criteria for accepting or rejecting claims;
c. clear and objective loss estimation procedures (including estimation of reinsurance recoveries); and
d. methods for monitoring compliance with claims management processes and procedures such as:
i. minimum documentation standards;
ii. internal audit;
iii. peer review of claims paid;
vi. assessment of brokers' procedures and systems to ensure the quality of information provided to the Insurer is of a suitable standard; and
vii. audits of ceding companies to ensure that the value of claims paid is in accordance with treaties in place.
3. In establishing and maintaining effective claims handling systems and procedures, senior management of Insurers should consider factors including the following:
a. appropriate systems and controls should be in place to ensure that all liabilities or potential liabilities notified to the Insurer are recorded promptly and accurately. Accordingly, the systems and controls in place should ensure that a proper record is established for each notified claim;
b. suitable systems should be in place to identify and quantify, for the key claims handling procedures, timeliness of processing, the effects of processing backlogs and the need for any corrective action;
c. suitable controls should be maintained to ensure that estimates for reported claims and additional estimates based on statistical evidence are appropriately made on a consistent basis and are properly categorised;
d. regular reviews of the actual outcome of the estimates made should be carried out to check for inconsistencies and to ensure that procedures remain appropriate. The reviews should include the use of statistical techniques to compare the estimates with the eventual cost of settling the claims, after deducting the amounts already paid at the time the estimates were made;
e. appropriate systems and procedures should be in place to ensure that claim files without activity are reviewed on a regular basis;
f. appropriate systems and procedures should be in place to assess the validity of notified claims by reference to the underlying Contracts of Insurance and reinsurance treaties;
g. suitable systems and procedures should be in place to accommodate the use of suitable experts such as loss adjusters, lawyers, actuaries, accountants etc. as and when appropriate, and to monitor their use; and
h. there should be suitable systems and procedures in place to identify and handle large or unusual claims, including systems to ensure that senior management are involved from the outset in the processing of claims that are significant because of their size or nature.