CIP C112 Practical Issues In Claims Management (2011), April 2015

What does claims management encompass ?
1. Handling individual claims 2. Departmental claims processes and procedures.
(What term/s do the ) courts use to determine bad faith?
harsh, vindictive, reprehensible, high-handed, oppressive, malicious
what benchmark are adjusters held to?
Utmost good faith
broader claims management functions (6)
1. establish procedures, 2. providing administrative support, 3. establish a system of record keeping, 4. align operations to corporate vision and strategy, 5. ensuring regulatory compliance, 6. staffing and educating claims department.
5 ways monitor claims operation
Supervisor or team lead reviews all files of new adjusters, Claims audit, Customer survey, Letters to claimant to confirm payments, Statistical claims reports
(examples of) claims Reports
Open / close ratios, Exceptional claims for special attention, Trends
(what is the) claims managers role (8 items)?
Planning – day to day claims procedure, Official spokes person, Decision maker at the departmental level, Review strengths and weakness of department, Admin functions, Inspire staff, Handle conflicts
3 types of claims operations
Centralized, Decentralized, Hybrid
describe Hierarchical Configuration
Like multilayer wedding cake, More employees (room for advancement, specialization)
describe Flat configuration
Single layer cake, Fewer designated managers, Staff are more multiline.
successful claims strategies must demonstrate (guidelines):-
be specific, be challenging, be capable of being measured.
approaches to learning (6)
learning by doing, self paced learning, interactive e-learning, coaching and mentoring, classroom instruction, case study approach
Processes & procedures accomplish:-
promote productivity, reduce errors, control expenses.
support for customers
treat with respect, receive help in time of crisis, claims resolved efficiently, payments made speedily
File leakage
claims overpaid, exaggerated claims not controlled, fraud not identified.
reasons for site visits (4)
Complex claims, severe losses, potential denials, identify subrogation, Good customer service.
reasons to use IA’s
volume of claims, holiday/ busy periods, specialist knowledge, remote areas.
who controls the claim if IA employed
Examiner duties (4)
analyse reports, determine further action, document the file, ensure policy conditions are applied.
Appraisers are retained for (4)
automobiles, motorcycles, boats, other equipment
(6 steps for) claims handlig
1.coverage analysis
2. loss reserving
3. reporting to others
4. investigation
5. evaluation
6. negotiation and settlement.
(how do) P&C Ins. Co’s. define themselves ?
by how they fulfil their promise of follow through on indemnity payments to Insureds.
claims are adjudicated
according to the policy wording in effect at the time the claim occurred.
step 4 of claims handling (Auto investigation) (7)
having the insd provide loan/lease info 2. certs for vehicle, 3. location of all keys, 4. names and contact info of all people having access to the vehicle, 5. description of vehicle, 7. receipts for upgrades.
Quantitative measurement is
Stated numerically.
Advantages of using PPN (6)
economics of scale 2. Ensuring product and service quality 3. Special priority treatment 4. Cost controlling mechanism for adjuster 5. Discount price without sacrificing quality 6. Fixed labour or unit cost
Preferred Contractors (should have the following qualities)
reputation for being honest 2. properly licensed. 3. competitive pricing. 4. no surcharges 5. commitment to handling claims promptly and fairly. 6. written guarantees 7. priority for insureds. 8. modern well maintained equipment. 9. compliant with fire, environmental and health regulations. 10. experienced staff.
common 1st step in setting a dept. budget is
look as same dept’s. budget from previous year
Baseline budgeting
uses previous years budget to determine new budget
Zero based budgeting
examines root need of the organisation justifying each expenditure
performance based budgeting
deeper review of each category to ensure it contributes to the company’s overall mission and goals.
special investigation unit
SIU is staffed by people with exceptional investigation skills. (The ability to maintain excellent working relationships with)
law enforcement officials, 2. fire officials and other organizations who investigate Insurance Fraud. Often provide training on Fraud awareness.
allocated expense
paid by adjusters to handle the claims file.
Unallocated expenses
Other expenses not seen on any particular claim. (cost of doing business)
unallocated expenses (examples)
staff salaries. 2. equipment for staff 3. furniture, 4. supplies, 5. education.
allocated expenseses (examples)
Engineers, 2. IA’s , 3. Counsel, 4. appraisers
6 parts to Monitoring the claims function
1. Control of documentation
2. Standards of Measurement
3. Multi-layered goal setting
4. Complaint analysis as a control mechanism
5. Preferred vendors and Service providers
6. Controlling Fraud.
total loss reserve amount is made up of
case loss reserves and aggregate reserves
aggregate reserves are
calculated by actuaries
over reserving
leads to loss of competitive edge if actuaries have used them to calculate premium.
under reserving
leads to loss of company resources as not enough premium would be charged to cover the future losses.
(name two ) reserving philosophies
ultimate possible outcome theory 2. probable settlement value theory
Ultimate possible outcome theory
A) Moderate worst case scenario
B) Assumes negative outcome to judicial arguments
C) Conservative
D) Reserves on the high side
E) Early negotiation rarely successful / most large files go to litigation
Probable settlement value theory
A) More optimistic
B) Negotiation or mediation usually result in a favourable outcome
C) Less litigation / conservative judicial framework
what reserves would you set for a total loss fire on a home
1. Building
2. Contents
3. Additional Living Expense
(others could be Liability, Scheduled items, outbuildings)
Average cost or Volume reserves
are set up when adjusters open a type of claim actuaries predetermine the reserve amount.
tabular Reserves
actuaries deveop tables for long-tail exposures like Bodily Injuries and are affected by the Time value Of Money
Time Value Of Money (definition)
concept where money in your possession today is worth more then the same amount at a future date. (the money would earn interest overtime if it were invested.)
Present Value is
a sum of money needed today to meet a stated obligation at a future point. (fluctuates according to interest rates and future predictions.)
Future value =
Principal amount + interest
loss development ( definition)
the increase or decrease in the value of losses that occurs between two loss evaluation dates.
Incurred But Not yet Reported (reported after years)
Incurred But Not Enough Reserve (allowance for development)
Loss Triangle Method (reserving)
widely used groups losses by year over successive time periods to show a history of loss development to predict losses at various points in time. Applied to forecast the Ultimate Losses.
LDP is
Loss Development Factor
Loss Development Factor
a calculated percentage applied to losses evaluated at certain intervals to project the the amount they will ultimately settle at.
audit – (definition)
formal examination, analysis or verification of a process.
what is needed to set a reserve
1. Assess coverage under the contract
2. Assess the insured’s legal liability
3. Consider any avenues for recovery
4. Assign forensic experts as needed
5. Assess the damage
Claims audit
The ultimate monitoring function to ensure that claims are handled effectively, and expeditiously.
Performed to preserve the financial stability of the insurer by examining the claims operation at many levels
Proactive approach (audit)
Audit undertaken in order to take the initiative and control the claims operations before any actual problems have been identified.
reactive approach (audit)
Respond to problematic areas that the marketplace or regulators have already identified.
Full review audit
Examines every facet of how a claims department operates (Costly to perform – Provides useful information )
Specific Audit
Examines limited aspects of the operation
( Focus narrow (reserving / indemnity / financial reporting requirements)
External audits can be imposed by
Reinsurers holding treaties .
( Focus on handling of claims in general)
2. Government regulators ( Solvency, market conduct, consumer rights)
3. Insurance company’s external financial auditing firm
(Focus on the financial transactions and on establishing credibility for the corporation’s financial results)
when a company executes an audit to uncover the root cause of an issue, unknown, immediately is an example of an
emergency audit
Subrogation (definition)
is the right of an insurance company that has paid a claim to step into the shoes of the policyholder, in order to take
legal action against an at-fault third party to recover what was paid.
In regards to subrogation, loss adjusters need to
1. Promptly identify subrogation potential
2. Plan an intense investigation
3. Produce the type of evidence needed to establish legal liability against a wrongdoer
subrogation, when is an insurer not bound by a release signed by the insured
if notice is given to the tortfeasor of the insurer’s interest. (case law the insurer is not bound by the release)
Accident Benefits Ontario (even though DCA applies)
Insurer can subrogate AB for
Vehicles that are more likely to be involved in claims resulting n bodily injury (heavy commercial hits passenger vehicle,via loss transfer payment).
Loss Transfer form (ON)
Request for indemnification form is completed when payment is actually requested.
Somersall v Freeman (2002) – insured was paid to the limits of the policy by Third Party ($200k) at trial in exchange for a release. Insured then sued own Insurer for the remainder of the costs.
Courts agreed no prejudice as the insured was limited to the TP policy and their damages where greater than the agreed payout.
Garnishee (definition)
legal process to seize the property, money, earnings or receivables of a debtor that are being held by a Third Party.
undue delay in asserting the claim or right of claim (suffered some prejudice from delay)
enabling creditors to realize the greatest possible recovery from a debtor
Law of equity over the common law – law of equity vs common law
rule of equity wins
Indemnity agreement
protect the insurer’s right to recoup any losses or expenses paid on the bond
Quia Timet Order (Because he fears)
is an injunction sought when the plaintiff wants to prevent harm before it occurs (needs strong evidence harm will occur)
Mareva injunction
used in order to force a third party to preserve their assets in anticipation of a recovery action.
Anton Piller Order
granting civil authority for search and seizure of relevant property (possessed unlawfully or
being used illegally)
what is the only province in which subrogation is sought in the insurers name
Quebec (unless goes to federal court)
Litigation (definition)
carry on a legal contest or legal challenge by judicial process.
Litigation Plan
Maps out how a case will proceed, with a timetable that includes judicial deadlines and estimates when the claim will be resolved. Includes time limit to respond to pleadings.
written questions prepared by a party to a civil action to serve on another person, who is required to reply in writing under oath.
denies the plaintiff allegations and asserts an independent cause of action against the plaintiff. (courts may exclude the Counterclaim)
three conferences used in Ontario courts for claims resolution.
1. Case Conferences
2. Settlement conferences (evaluate strength of both cases)
3. Trail Management Conferences (streamline presentations for trial)
conflict of interest
when a judgement of legal counsel on behalf of a client could be adversely affected because of competing interests.
if the insurers and the insureds interests differ
the insurer and insured have a conflict of interest. (different lawyers should be retained for each, in a court situation).
San Diego Federal Credit Union v Cumis (1984)
The court ruled that the insured should be permitted to hire independent counsel at the expense of the insurer.
to separate the issues in a lawsuit. (courts are reluctant to Bifurcate)
the defendant may launch a cross-claim against a co-defendant in the action, asserting a related cause of action.
Common settlement calculation errors
Making certain deductions after liability split are accounted for.
2. Improper inflation of a proposed settlement by applying prejudgement interest to the entire settlement.
3. performing gross up calculations on asset amount (rather than the remaining amount after agreed liability split)
In house counsel (7 benefits)
1. Claims tend to settle much earlier
2. Have a smaller case load
3. Proactive handling
4. More cost efficient
5. Only works on insurers cases
6. On salary
7. Settlement authority
Coverage counsel
to offer an opinion as to whether a claim is payable under the policy (avoids conflict of interest)
Why ignore potential conflict of interest?
1. Another lawyer of comparable expertise and experience not available
2. Extra cost
3. Delays
4. Inconvenience of getting lawyer unfamiliar with case
Litigation process
1.Legal counsel receives the assignment
2. Reviews the file and applies legal principles to determine causation, assess liability, and assess damages
3. Tests the validity of the plaintiff’s case and works out a theory of defence
Sets out the claim against the defendant and the amounts claimed
communication between counsel and client, and documents or materials prepared by counsel acting for
his or her client in anticipation of litigation. ( do not need to be shown to the opposing side)
what provinces require disclosure of policies
Pierringer release
is disassociated from the litigation by settling directly with the plaintiff in exchange for
a release.
Mary Carter agreement
the settling defendant is willing to share information that is favourable to the plaintiff against
the non-settling party. In return, the plaintiff caps the liability of the settling party. (courts may see this as prejudice against defending, non settling, party)
nuisance settlement (why settle)
1. Unclear legal issues
2. Lack of witnesses
3. Inadequate documentation
(weak case is not this)
Excess of limits letter
required when the amount claimed exceeds the liability limits of the insurance policy. ( the insured should be advised in writing.)
Duty to defend
Arises when a suit brought against the insured alleging facts that would elicit a payment under the policy
Pleading rule
the priciple of determining the duty to defend from the pleadings
services used in littigation
1. PI’s
2. Mediators
3. Arbitrators
4. Expert Witnesses
5. consultants
6. court reports
7. copying services
8. case management workers
9. video conferencing producers
10. structured settlement providers
11. legal experts
12. others
is a sudden disaster of immense proportions that causes havoc to people, property, and the natural environment.
Insurance claims catastrophe
Sudden and unexpected event causing many insured claims, often on a large scale. The result of an insured peril. Must be severe enough to have significant financial consequences for the insurance industry.
Claims Emergency Response Plan
Help insurance industry handle large number of insured losses arising from an emergency.
what companies must consider in a Cat situation
1. Implications of choosing to overlook policy exclusions. (No claim to reinsurers)
2. Communicating with policyholders (Helping them deal with overwhelmed and discouraged feelings)
3. How it affects their own operations (Need contingent backup resources)
4. How the government will react (Impose sanctions to protect customers)
5. How to identify and segment CAT claims (coded)
Cat Logistics (how its done)
1. Liaise with others, (depts. Gov, etc)
2. assign adjusters (IA’s, form temp team)
3. Analysing the existing claims infrastructure in order to develop
4. Develop framework for the flow of communication.
5. Determining equipment needs
6. Organizing transportation & Documentation
7. Organizing lodging for team
8. Organizing a control centre for operations.
Catastrophe orientation sessions
1.Role of each member of CAT team
2. Local By-laws affecting insurance activities
3. Local construction techniques
4. description of condition of area
5. Description of police and other service vehicles
6. Language issues affecting communication.
7. Local Cultural Issues
8. Mood of local residents
9. reminder as to duration of adjusters term
10. Description of working conditions
Evaluating the CAT response
1. How the operation fared
2. Outcome of customer service
3. Operation expenses
4. How policy wordings fared?
Class actions history
1. Originated in England in the 17th century (Bill of peace)
2. 1833 American courts
3. Canada through provincial rules of civil procedure
4. Quebec was the first province to legislate the modern class action framework in 1978
5. Canadian Western shopping centres inc v Dutton (2001)
Three main objectives (for class action)
1. Streamline judicial process
2. distribute legal costs over large numbers of people
3. Act as a deterrent for wrongdoers.
Class action
Is a civil procedure used to secure a judicial remedy for a group of persons who have common interests in an actionable cause.
main reasons for Class Action in Canada
1. mass torts,
2. products liability,
3. anti-trust violations
Purpose of a Class Action
To afford greater access to justice to more people, pooling of their legal and financial resources to launch a single action.
downside of class action
1. Encourages more litigation
2. Permits claims of nominal individual value that might otherwise never have been instituted
Substantive law
Consists of all laws that define, describe, regulate, and create legal rights and obligations.
Procedural law
Law that establishes the methods of enforcing the rights established by substantive law.
to start a Class action you must
1. apply to the courts for approval to use the class action procedure.
2. A motions judge assesses whether criteria outlined in legislation has been satisfied.
certify class actions (Requirements )
1. Pleadings must disclose a cause of action.
2. 2 or more persons have common issues
3. would be the preferred procedure for common issues
4. there is a representative plaintiff. (who has requirements)
the representative plaintiff (requirements in class action)
1. Fairly and adequately represents the interests of the class
2. Produced a plan for the proceedings on behalf of the class.
3. does not have a conflict of interest with the class on common issues.
In favour of Class action
1. Questions of fact or law common to the members of the class are dominant over any questions affecting only individual members.
2. Other means of resolving the claims are less practical or less effective
Against Class Action
1. Members have valid interests in controlling the prosecution of separate actions
2. Proceedings would involve claims that are or have been subject to other proceedings
3. it would be more difficult to get relief than if other means were sought.
Who pays legal fees (class action)
in Canada in General – the loser pays (there is a no cost rule which may apply)
PIPEDA (January 1, 2004)
Personal Information Protection and Electronic Documents Act (private sector obligations)
Privacy Act (July 1, 1983)
obligations of Federal Gov. and Agencies.
Privacy commissioner of Canada
oversees PIPEDA
1. Investigates complaints from individuals.
2. Makes recommendations to help a business improve how personal information is handled
3. Mandate is problem solution not retribution or punishment
4. can publish in media or Federal Court if extreme case.
during the course of an investigation or audit (privacy)
It is a criminal offense to obstruct the commission or audit, or to knowingly
dispose of personal information that is the subject of a request.
Personal information
any factual or subjective information, recorded or not, about an identifiable person
10 privacy principles (PIPEDA)
Identifying purposes
Limiting collection
Limiting use, disclosure, and retention
Individual access
Challenging compliance
Exceptions to Privacy Legislation
1. to a lawyer representing the Co.
2. to collect a debt or judgement.
3. to comply with subpoena, warrant, order by court or similar jurisdiction.
can refuse access to information if (PIPEDA)
1. Personal information about another person may be revealed
2. Commercial confidential info could be revealed.
3. someone’s life or security my be compromised.
4. Info collected without consent related to investigation on lawful exeption
5. info generated during Dispute resolution process
6. info protected by solicitor-client privilege.
Formal teams
stable dept. or section within recognised structure (BI team, AB Team, PD Team)
Informal teams
Created to deal with a particular situation and are disbanded after performing their function (Cat Team)
What makes a successful team
Share aims, have a common work language, able to manage relationships as well as tasks.
How can a manager gain awareness about their team?
Strolling around the department, inviting informal chats.
Encouraging the team concept
1. Having a consistent approach to solving problems
2. Taking into account people’s characteristics and technical skills
3. Encouraging supportive behaviour
4. Creating an open, healthy climate
5. appreciate the teams progress
6. Providing training opportunities
Effective teams
team members are motivated, hard-working, and prepared to contribute extra time and effort in a crunch.
Herzberg’s Theory
focuses on characteristics he called hygiene factors and motivating
Herzberg’s Hygiene factors
organizational policy and rules, the kind of supervision people receive,
working conditions, interpersonal relations, salary, status, and security
Herzberg’s Motivating Factors
1. gain a sense of achievement;
2. receive managerial recognition of their achievements;
3. perform interesting tasks;
4. advance to higher-level tasks
Maslow’s Theory
held that employees are motivated by a hierarchy of human needs, and that a person who has achieved one level will inevitably seek the next.
Motivators in Maslow’s Theory (hierarchy from lowest to highest)
1. basic survival needs (food, clothing, shelter);
2. safety and security needs (protection from deprivation and threats to the individual /family);
3. social needs (sense of belonging);
4. the need for esteem (self / others)
5. the need for self-fulfilment / self-actualization (realizing one’s full potential).
Equity Theory
employees compare the outcomes of their work with the outcomes experienced by others in similar positions. If an employee believes his or her rewards are less than those of others who have performed at the same level, the employee will decrease the quality or quantity of work to compensate for the difference.
Other Motivating Factors (manager)
1. Know employees (personal interests)
2. Assess strengths and weaknesses
3. Involve staff in discussions
4. Recognize performance (verbal or other)
steps help to create an appropriate atmosphere for brainstorming sessions
1. Use humour as a stimulus for creativity.
2. Invite the group to propose solutions openly and without restraint.
3. Do not judge ideas during the brainstorming.
Communicating Abstract Ideas
Because many people are visually oriented, using charts, maps, and other such devices to present ideas can make concepts concrete and thus easier to understand.
Change in approach to stimulate fresh thinking
A fresh, non-linear approach requires fresh thinking that can lead
to innovative action. Try stating a problem in reverse
Positive approach to problems
Any problem can be seen as an opportunity to make things work more smoothly.
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