Concepts of claims in general insurance:

By: M.Rakesh (B1-54)

Introduction:
What is General Insurance?

Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General Insurance
comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health
Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and
Omissions insurance for professionals, credit insurance etc.

Non-life insurance companies have products that cover property against Fire and allied perils, flood storm and
inundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non-
life companies also offer policies covering machinery against breakdown, there are policies that cover the hull
of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further,
insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business.

In respect of insurance of property, it is important that the cover is taken for the actual value of the property to
avoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposes of
insurance, the insured will have to bear a ratable proportion of the loss. For instance if the value of a property
is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim
amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the property
by 50% ). This concept is quite often not understood by most insured’s.

Types of general insurance

• Home Insurance Policies - One can obtain cover against the risk of loss to residence and property
therein from theft, fire, earthquake, flood, or other contingencies.

• Renter’s Insurance Policies - These policies secure property owned and stored by lessees in rental
premises. Sometimes the landlord may provide such cover. If not, purchasing insurance cover may be
useful.
• Medical or Health Insurance Policies - Such policies provide financial security incase of serious
illness or hospitalization.
• Auto Insurance Policies - These policies are required in certain countries like USA. Even if not
required, such policies are popular as they take care of the expenses in case of accidents. For example, the cost of
repairs, cost of reimbursing the aggrieved party, and medical bills may be covered by auto insurance policies.
• Pets Insurance Policies - This is a popular category in the West. Pet insurance policies cover expenses
incurred in relation to pets like medical bills or loss of pets.
• Travel Insurance Policies - These cover any contingencies during travel.
• Business Insurance Policies - Business insurance policies financially secure an organization’s physical
and intellectual property.
• Personal Liability Insurance Policies - Professionals may find these policies beneficial. They provide
cover against client’s claim for loss suffered in certain situations.
• Public Liability Insurance Policies - These policies are for entities conducting public events like
event management organizations. They provide cover against costs incurred due to any unforeseen
incident in the entity’s premise during an event.
• Lifestyle Protection Insurance Policies - These kinds of policies provide financial security in case of
unemployment or major illness or such other reason. The idea being that the policyholder should be
able to maintain his/her lifestyle as was before the happening of any contingency.

There are general insurance products that are in the nature of package policies offering a combination of the
covers mentioned above. For instance, there are package policies available for householders, shop keepers and
also for professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurers
also offer customized or tailor-made ones.

Suitable general Insurance covers are necessary for every family. It is important to protect one’s property,
which one might have acquired from one’s hard earned income. A loss or damage to one’s property can leave
one shattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many
homeless and penniless. Such losses can be devastating but insurance could help mitigate them. Property can
be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial
relief to a person undergoing medical treatment whether due to a disease or an injury.

Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery,
stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or
businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right
covers? And are they insuring adequately are questions that need to be given some thought. Also organizations
or industries that are self-financed should ensure that they are protected by insurance.

Most general insurance covers are annual contracts. However, there are few products that are long-term.
It is important for proposers to read and understand the terms and conditions of a policy before they enter into
an insurance contract. The proposal form needs to be filled in completely and correctly by a proposer to ensure
that the cover is adequate and the right one.

insurance contract determines the legal framework under which the features of an insurance policy are
enforced. Insurance contracts are designed to meet very specific needs and thus have many features not found
in many other types of contracts. Many features are similar across a wide variety of different types of insurance
policies.

The insurance contract is a contract whereby the insurer will pay the insured (the person whom benefits would
be paid to, or on the behalf of), if certain defined events occur. Subject to the "fortuity principle", the event
must be uncertain. The uncertainty can be either as to when the event will happen (i.e. in a life insurance
policy, the time of the insured's death is uncertain) or as to if it will happen at all (i.e. a fire insurance policy).

• Insurance contracts are generally considered contracts of adhesion because the insurer draws up the
contract and the insured has little or no ability to make material changes to it. This is interpreted to
mean that the insurer bears the burden if there is any ambiguity in any terms of the contract.

• Insurance contracts are aleatory in that the amounts exchanged by the insured and insurer are unequal
and depend upon uncertain future events.

• Insurance contracts are unilateral, meaning that only the insurer makes legally enforceable promises in
the contract. The insured is not required to pay the premiums, but the insurer is required to pay the
benefits under the contract if the insured has paid the premiums and met certain other basic provisions.

• Insurance contracts are governed by the principle of utmost good faith (uberrima fides) which requires
both parties of the insurance contact to deal in good faith and in particular it imparts on the insured a
duty to disclose all material facts which relate to the risk to be covered. This contrasts with the legal
doctrine that covers most other types of contracts, caveat emptor (let the buyer beware).
 CONTENTS

CLAIMS
Procedure

Notice of loss

1. Policy conditions usually provide that the loss be intimated to the insure immediately. The purpose of the
immediate notice is to allow the insure to investigate a loss at its early stages.

2. under certain types of policies (e.g. burglary)notice is also to be given to police authorities .under rail transit
cargo policies, notice has to be served to the railways also.

3. on receipt of the intimation of loss or damage insurers check that:

a) the policy is in force on the date of occurrence of the loss or damage
b) the loss or damage is by a peril insured by the policy
c) the subject matter affected by the loss is the same as is insured under the policy, and
d) Notice of loss has been received without undue delay.

Investigation and Assessment

4. On receipt of the claim form duly completed from the insured, the insures decide about investigation and
assessment of the loss. If 6the loss is small, the investigation to determine the cause and extent of loss is
done by an officer of the insurers. The investigation of other claims is entrusted to independent licensed
professional surveyors.

5. For personal accident claims, the insured is required to submit a report from the attending doctor specifying
the cause of accident or the nature of illness as the case may be and the duration of disablement. Medical
evidence is also required to support of workmen’s compensation claims. Live stock and cattle claims are
assessed on the basis of the report of a veterinary doctor.

6. Third party claims involving personal injuries are assessed on the basis of medical opinion; those involving
property damage are assessed on the basis of a survey report . in either case legal opinion is sought to
decide whether any liability at law attaches to the insured.

Surveyors and loss Assessors

7. as per IRDA regulations surveyors are granted license to conduct survey in seven classes of insurance ,
namely, fire, marine cargo, marine hull, engineering, motor, miscellaneous and loss of profits.

8. The practice in adjustment of marine claims is along different lines. General average losses are assessed by
specialists viz, average adjusters, other losses (e.g. total loss, partial loss etc...) are assessed by surveyors.
Claims Documents

Claims Forms

9. The contents of the claim form vary with each class of insurance, in general insurance the claim form is
designed to elicit full information regarding the circumstances of the loss, such as date of loss, time, cause
of loss, extent of loss, etc. The other questions vary from one class of insurance to another claim forms are
invariably used in fire and miscellaneous insurance.

10. The issue of claim form does not mean that liability for the claim is admitted by insurers. Thus, claim
forms are issued with the remark ‘without prejudice’. All correspondence with the insured is also marked
‘without prejudice’.

11. In addition to the claim form, independent survey report etc. Certain documents are required to be
submitted by the claimant or secured by the insurers to substantiate the claim. For example for fire claims,
a report from the fire brigade would be necessary,. For cyclone damage, a report from the metrological
office may be called for. In burglary claims, a report from the police may be necessary. For fatel accident
claims, reports may be necessary from the coroner and the police. For motor claims , the insurer like to
examine driving license, registration book, police report etc…in marine cargo claims, the nature of
documents varies according to the type of loss, particular average, inland transit claims etc..These
documents have been identified earlier in the marine insurance.

Arbitration

12. Arbitration is a method of selling disputes arising out of contracts. Arbitration is done in accordance with
the provisions of the arbitration and conciliation act, 1996.

13. The normal method of enforcing a contract or selling a dispute there under would be to go to a court of law.
Such litigation, however, involves considerable delay and expense. The arbitration act allows the parties to
submit disputes under a contract to the more informal, less costly and private process of arbitration.

14. Fire and most miscellaneous policies constrain an arbitration clause which provides that if the liability
under the policy is admitted by the company, and there is a difference concerning the quantum to be paid,
such a difference must be referred to arbitration.

Settlement

15. If the claim is found to be inn order, payment is made to the claimant and entries made in the records. The
insured may not be the person to whom the money is to be paid. For example, if the property insured under
a fire policy is mortgaged to a bank, then according to the agreed bank clause, claim monies are to be paid
to the bank, whose receipt will be a complete discharge to the insurers. Similarly claims for the total loss on
vehicles subject to hire purchase agreements are paid to financiers. Marine cargo claims are paid to the
claimant who produces the marine policy duty endorsed in his favour.
Salvage

16. Salvage refers to partially damaged property. On payment of loss, the salvage belongs to insurers; for
example, when motor claims are settled on total loss basis, the damaged vehicle is taken over by insurers.

Recoveries

17. After settlement of claims, the insurers under the law of subrogation are entitled to succeed to the rights
and remedies of the insured and to recover the loss paid from a third party who may be responsible for the loss
under the respective laws applicable. Thus, insurers can recover the loss from shipping companies, railways,
road carriers, airlines, port trust authorities. For example, in the case of non delivery of consignment, the
carriers are responsible for the loss. Similarly, the port trust is liable for goods which are safely landed but
subsequently missing. For this purpose, a letter of subrogation duly stamped is obtained from the insured.
(Note: the IRDA regulations (protection of policy h holders interests) provide that “the policy holders shall
assist the insurer. If the latter so requires in the prosecution of a proceeding or in the matter of recovery of
claims which the insurer has against third parties”).

Claims Procedures and Claimants

Claims intimation

When you first notify your claim over phone or by letter, your insurer makes an entry in a register maintained
for that purpose and allots a number to your claim. This number, called claim number, is the key or password
to your claim file. Any further enquires or follow-up is likely to be more productive if you are aware of this
number.

Insurer then sends you a form called claim form and also asks you for an estimate of the loss. This document
draws information pertaining to the accident from you, based on which your insurer decides on the further
course of action. At this stage, you will also be advised of the various documents needed for processing your
claim. If not, you can ask for and obtain a list from the insurer. By doing so you avoid wastage of time and
money(by way of interest loss) in following up later on.
 Claim Documents
Policy type Fire Machinery Motor Burglary Marine
Purpose
Identification of Policy, S.R, Policy, S.R, Policy, S.R, Policy, S.R, Consignment note, Invoice, Declaration or
property Photos, Claim Photos, Claim Photos, Claim Photos, Claim policy, Packing list, S.R, claim form pre
form form form form shipment surveys
Insurable Policy Invoice, Policy R.C book, Policy, Invoice, Policy/declaration, Certificate
Interest/Proof of Policy, certified etc Consignment note
Insurance permits etc
Loss & Perill Photos, Police Photos, S.R Photos, Police Books of Captain’s protest, S.R, Log book. Others,
report, Met report, Met accounts, F.I.R, depending on the perill
report, Fire report, S.R, Photos,
brigade report, Newspaper newspaper
Newspaper cuttings if loss reports
cuttings if loss reported, S.R
reported, S.R
Quantum of loss Estimates, Bills, Estimates, Bills, Estimates, Bills, Estimates, Bills, Policy/declaration, Invoice, Carrier’s
Receipts, S.R, Receipts, S.R, Receipts, S.R, Receipts, S.R, certificate, Landing remarks, B/E, S.R,
Policy copy for Policy copy for Policy copy for Policy copy for Bills for expense
excess, etc excess, etc excess, etc excess, etc
Period Policy, C.I., Policy, C.I., Policy, C.I., Policy, C.I., Policy/declaration, etc
Proof of date Proof of date Proof of date Proof of date
of accident if of accident if of accident if of accident if
any(e.g. F.I.R) any(e.g. F.I.R) any(e.g. F.I.R) any(e.g. F.I.R)
Compliance with S.R S.R D.L, F.C, Trip S.R S.R
conditions Sheet, Load
sheet, Permit,
FIR
Preservation of As per individual May not occur. F.I.R, Keys, F.I.R, Witness Lodging monetary claim on carriers or
recovery rights case As per each case Transfer forms, statement, etc other authorities
etc, in total loss
cases
Others Subrogation Subrogation Satisfaction Subrogation Subrogation letter/letter of indemnity
letter where letter note/Subrogation letter
applicable letter

List of documents to be filed

The usual list of documents required is in table. This list is indicative and in general insurers tally all
documents for the information given.

Key to the Table

1. S.R: Survey Report
2. D.L: Driving License
3. F.C: Fitness Certificate
4. F.I.R: First information report with police. At times final police report is also asked for.
5. Consignment note: Railway receipt/Lorry receipt/Airway bill/Bill of lading, as applicable.
6. Monetary Claim: A letter has to be written to the carrier(roadways/railways etc) asking for
compensation mentioning the amount of loss and holding the carrier responsible.
7. B/E: Bill of entry.
8. Other Authorities: Port trust, Customs, airports authority, etc.
 9. C.I: Claim intimation.

When you submit a completed claim form,

• The insurer makes a provision for the loss in his books of account, based on these documents.
• A surveyor is appointed where required. Surveyors are appointed for claims above a particular value
where losses are partial requiring repairs.
• In other cases the final receipts and bills may be submitted along with the claim form itself.

Survey

When a surveyor or official of the insurance company visits, you are expected to give full co-operation and
assist them in taking photographs or obtaining information from various departments. When such occasions
arise it may be prudent to list the agenda and also find out the availability of the persons required, for a fruitful
meeting. This will ensure that claims are settled in the minimum possible time.

Surveyors are independent licensed (now by IRDA) professionals appointed by the insurance company on for
each claim. They inspect the damaged items, estimate the loss and submit their reports to the insurer. Their role
is to determine the following:

• Check on adequacy of sum insured

• Determine the amount of loss
• Check for compliance with conditions and warranties
• Take photographs
• Advice on valuation of salvage.
The Salvage of liability, however, is the prerogative of the insurer. As an insured you are expected to fully
cooperate with the surveyor and provide him with any relevant information.

Discharge and settlement

When the surveyor submits his report and the claim is payable, the insurance company usually calculates the
claims payable and sends you a voucher called the discharge voucher. This is usually for the full and final
settlement of claim. If you are dissatisfied or unclear as to the basis of settlement, you can approach your
insurer for clarification. After the vouchers are signed, you will be asked to surrender the salvage and also
transfer your rights in the damaged property to the insurer. When all these requirements are complied with,
your claim will be settled by way of cheque.

When you will receive your cheque

Till recently this was unpredictable, with not being guided by any service standards. However, many of the
insurers are now undertaking to settle your claims within 10-15 days or a similar definite time frame.
At times, insurers also pay partially when they are sure of their liability. The full settlement is done later after
all processes are completed. Usually, the surveyor makes a preliminary assessment of loss and the insurer
makes an on-account payment on the basis of his recommendations. Such settlements are done in the case of
large claims, since they may create a financial strain on the claimant insured due to a longer claim settling
process. You can avail of this instalment facility to reduce the time gap.
When (under what conditions) an insurer will settle a claim
To begin with, your insurers would like to verify that are indeed liable for the loss. Your claim should prima
facie satisfy the following essential requirements before it can be admitted.
Period
Insurers first make sure that your policy was valid on the date of loss, which means that the premium should
have been paid and the accident should have occurred between the start and the end dates mentioned in your
policy.

Property

The next step taken by insurers is to verify that the property damaged and the property insured are the same.
Insurers do this prima facie by comparing the description of property in the policy and claim notification.
Peril

At the cost of repetition, it should be mentioned that not all the losses to the asset insured are reimbursed. The
loss must have been caused due to an insured peril. This peril causing the loss should be specifically covered
by your policy. You can easily refer to the operative clause in your policy and make sure that your claim is
valid on this ground. At the same time, you should also remember to go through the listed exclusions to ensure
that the loss does not fall under them.

Insurable interest

You should have an insurable interest in the property. This is a feature unique to insurance contracts. Generally
insurable interest should exist both at the time of taking insurance and last till the time of loss.

Compliance with conditions

Insurers also examine if you have complied with all the conditions and warranties of the policy before they
admit liability.

How much will be paid

Principle of indemnity

Once the liability is established prima facie, steps will be taken to as certain the quantum of loss. The amount
of claim paid is based on the principle of indemnity. To recapitulate briefly, indemnity aims to put you in the
same financial position as before the loss. In applying the doctrine of indemnity insurers attempt to determine
the value of the damaged property at the time and place of loss. Thus, if the loss is to raw materials, the cost of
procuring them again may be the measure of indemnity. If the loss to furniture, than replacement by same type
and quantity of furniture may be the appropriate measure. If second-hand or resale furniture is available, the
same may be purchased and given to you. Otherwise new furniture may have to be bought.
Modification to the principle of indemnity

Some modification to the principle of indemnity may be required to calculate the loss. These are enumerated as
follow:

Depreciation
The application off depreciation varies in each policy. While motor policies specify the rates of depreciation, it
is sorted out after a claim in fire policies. Even in machinery insurance, where sum insured is on replacement
value basis, depreciation is applied on some parts. This is generally incorporated into the policy by way of
endorsements.
Reinstatement value policies
This is a special type cover given to buildings and machinery, where depreciation is not deducted from the
claim amount. When you opt for this cover, the sum insured selected by you must represent the mew value of
the property.

Agreed value policies

Where the property value is not easily determined at the time of loss, sum insured is based on an agreed value.
A notable case is the policy for marine cargo. Since it would be difficult to determine value at mid-sea after the
loss, insurers opt for agreed value covers.

Limits
Some policies limit the liability of the insurer of loss. An example can be found in the fire policy, where valued
articles above Rs.10000/ are not automatically covered.

Agreed additional costs

At times you have to incur costs in removing debris, modification of property after a loss to suit new
regulations, etc. clauses are attached to insurance polices that allow you to incur these costs.

Average
If you choose to declare your property for a value lesser than its true one, the premium contribution you make
to the insurance fund is proportionately lower. In such a case the insurance company considers you as a partner
in sharing the risk, and any loss is shared by you in the same proportion.

Excess
Many polices have a certain minimum loss that has to be borne by you. Whatever your loss may be, your
insurer reduces this amount form the claim. This saves your insurer the cost of servicing several small claims
and also ensures that you exercise reasonable care in safeguarding your property.

Salvage
Whenever there is a replacement and the insured gets a new part or asset, the claim would be adjusted for the
value of the old or damaged part. This is because the part is likely to have some scrap value and if you retain it,
you gain to that extent.
 Claims Management

Delays: Reasons and Remedies

The most common reasons for delays in setting your claims and remedies therefore are listed below.

Delayed or incomplete intimation of claim:

When intimating your claim please clearly specify your policy number, date ofloss, cause of loss and
description of the property damaged. When details are not clear your insurer may not be able to link your
policy and prima facie establish if a liability can exist.

Incomplete claim form

Here again, the insurer would like to ascertain possible liability and appoint a specialist surveyor if needed.
Hence it is prudent to completely and truthfully fill your claim form. On the basis of your intimation and claim
form your loss is prvided for in your insurers, books of account. If an insufficient amount is provided for, the
claim may be subject to internal controls and queries leading to a delay for you.

Non-submission of documents:
One of the chief reasons for delay is the haphazard submission of documents. A claim is not settled until all the
documents are submitted, and therefore partial submission does not help. If you don’t respond to your insurer’s
letters and also not submit documents within a reasonable time your insurer may close your claim as “No
Claim”. In such a case, if the claim is pursued at a later date it may either not be entertained by your insurer or
it might be further delayed since the claim may now have to get re-opened at a higher level of authority.

Dispute in valuation:
Having a specified method of valuation and being clear on what is covered will avoid delay due to disputes.
Sometimes insurers also help in getting your assets valued prior to accepting the risk and premium. You can
avail of such facilities provided to you to minimize problems later.

Documents lost at insurer’s end:

Though elementary knowledge, it is still worth stressing this: It is prudent to enclose documents numbered
with a covering letter and send them through registered post or otherwise have them acknowledged.

Delay in survey report:

Once you submit all the documents called for by the surveyor, you can report the same to your insurance
company. Retain copies of these and send a copy of the covering letter to the insurer, Insurers can follow up
with the surveyor for his report. You will also be able to approach other forums if there is undue delay on the
part of the surveyor or insurer.

Lack of proper proof of loss or its cause:

Where a claim intimation is delayed or the loss is not easily proved- such as washing away in a flood-it is
prudent to get in writing in the beginning itself(as soon as you intimate the claim)from your insurer, the
procedure involved. If unattended for some time it may prove more difficult for you to substantiate your claim.
For example, if goods are washed away in a flood, some proof of existence of goods prior to the floods may be
asked for and you should plan for such a situation.

Close proximity claims:

When your loss has occurred soon after taking a policy(there are stipulated time limits and it is usually one
week) insurers investigate the claim for fraud. The system has in-built checks to control fraud, and the claim
will be processed subject to investigation only. For example, if a motor vehicle meets with an accident
immediately after taking the policy, it will be investigated thoroughly to ensure that there has been no fraud.
However if it has been renewed continuously, this problem may not occur.

Discrepancy or contradictory information in proofs submitted to insurer:

Always cross-check your documents to verify their accuracy and consistency. Any careless error may lead to
further queries or investigation, and hence delay. Since insurers are answerable to the collective body of
policyholders in general they like to be absolutely certain that there is nothing dubious in your claim. Hence,
all information, oral or written, should be carefully co-ordinate to avoid misunderstanding or misinterpretation.

There should be close co-ordination between the various departments and functionaries involved in the
claim. Contradictory statements are bound to lead to problems.

Administrative slackness:

In addition to the above common reasons, the claim may be delayed due to administrative reasons or due to
overzealous stances taken by dealing officials or individual factors. You may have to take it up with higher
authorities or other forums.

Denial of claims: Reasons and Remedies

Cause of loss excluded under your policy:

The onus of proving that the actual cause of loss is from included in your policy is on you. Proper assessment
of risks, and planning your insurance covers, is the answer. Where the policy lists the perils covered, then
anything outside of it is beyond the scope of the policy. In such cases it is up to the insured to prove that the
cause of loss is indeed covered by the policy.

The property damaged is not covered under the policy:

Ensuring proper description in your policy and opting for wider covers and special clauses where
available(such as designation of property claus in fire insurance) will safeguard your claim. Care should be
taken to ensure that all new properties are covered and renewal is promptly done for the assets currently held.
(At times by oversight tanks, cooling towers, pumps, etc., which are outside the buildings are omitted.)
Similarly, for group personal accident policies, new additions may not have been included bon time.
Wrong description in policy:
The insured should take great care in ensuring proper description in the policy. Additions made to the policy
schedule should be properly authenticated by responsible authorities. Periodical cross-verification of the asset
schedule with physical facts, at least of the major properties, should be done.

Break in insurance:
If there is a break in insurance or the policy was not valid on the date of loss, your claim will not be paid.
Timely renewal of policy is a must.

Misrepresentation/ Non-disclosure
Any facts material to the risk are to be disclosed to your insurer. For Example, if a consignment is imported
and is covered only for the portion of inland transit after it has landed at the port, insurers may reject the claim
if these facts were not disclosed in the proposal. This is because it may not be possible to ascertain the
condition of goods after landing at the port. They may have been already damaged. A policy may be issued
after inspection of goods.

Violation of policy conditions:

There are several conditions in a policy, and you should take care to comply with all these. In case any of these
are violated the insurer would be right in denying your claim. Thus, if your car has been insured as a private
vehicle and it has been used as a taxi, it is a violation of the policy.

Alteration of the risk or assets covered:

If any change of ownership or occupation has been done and you have not obtained your insurers consent, the
claim may be rejected.

Premium not paid on time:

Section 64 VB of the insurance Act states that full premium should have been paid before commencement of
the insurance contract. Where this has not been done or premium collection is inadequate, delay/denial of claim
may result. These problems are more where bank guarantees or deposit premiums are accepted. For example,
in a transit policy(open policy or cover) issued to cover dispatches based on declarations, there may be
occasions when the initial premium is exhausted and there is a gap before the next payment. In such cases any
goods dispatched in the intermediate time will not be covered. Enclosing photo copies of premium receipts and
statement of declarations submitted may help.

Diminution of Claim: Reasons and Remedies

Even when your claim has been settled in time you may be disappointed when your claim is settled for a value
far less than your expectation. For example: A loss of Rs.35000/- is settled for Rs. 6000/- despite your being
insured for Rs. 10, 00,000/-. To ensure satisfactory claims settlement we need to go into the process of
assessing the quantum of claim and the problems encountered therein.

Depreciation:
The application of depreciation varies in each policy. While Motor policies specify the rates of depreciation, it
is sorted out after a claim in fire policies. Even in Machinery insurance, where sum insured is on replacement
value basis, depreciation is applied on some parts. This is generally incorporated into the policy by way of
endorsements.

Assessment of loss:
Other than the market value or replacement value before loss, the assessment of loss itself may be in dispute.
Where finished goods are partially damaged, insurers may offer part settlement. However, the goods may be
totally useless to u if you have to discard them for reasons of brand image. For example, consider a case where
one end of a consignment of cloth is damaged and the damage is 10%along the entire length of the cloth. Here,
if the insurer’s offers10% for claim settlement, you may want to dispute it since the entire cloth is useless to
you. Your end user or buyer may not accept cloth of smaller specifications. In other words, you cannot cut off
part of the cloth and retain the balance. Since these are not laid out in the policy it gives cause for grievance.
Interpretations in such cases may be with the dealing office. It may be possible to convince the insurer of your
stand. Otherwise, you may have to resort to other forums. If your stocks are prone to such losses, it may be
prudent to seek clarification at the inception at the inception of the policy itself.

Precautions to take
By now it must be clear to you that getting a claim settled is akin to running a hurdle race. Each hurdle has to
be navigated successfully. Here are a few tips that will help you reach the finishing line comfortably. We have
summarized some precautions that can be taken to minimize disappointments at the time of claim settlement.
This is in addition to the points mentioned in the foregoing paragraphs.

Precautions at the time of taking policy:

1. Generally the insurance agent fill up the proposal form, which the client signs. Please be aware that the
agent in such cases is not acting on behalf of the insurer, and any mistake by him will not bind the
insurer. The consequences will have to be entirely borne by the insured only. Hence, it is necessary to
go through the document fully and satisfy yourself completely before signing it.

2. Choose your sum insured appropriately. Improper valuation isone big reason for reduction of claims
due to the concept of averaging. The insured generally adopts RIV basis to ensure that the claim is
settled for the replacement value(normally higher). However, the effect of averaging and consequent
reduction in the claim is more in such cases. It is essential therefore to fix the sum insured carefully in
such cases.

Things to do on receiving your policy:

1. Check the details in the schedule.

2. Ensure that the document reflects your intentions while taking insurance. The perils you want covered
should be stated to the covered by the policy.

3. Notify any variation immediately and get it rectified.

Things to do at all times:

1. Always intimate any material changes (e.g. occupation, ownership, etc) to the insurer at the earliest.
Please note that material changes are those that add to the risk. When in doubt intimate to the company.

2. Be aware of the policy conditions and abide by them.

Things to do after Claim:

1. Act as if uninsured. You are expected to take all the steps to preserve and protect your property that you
would have taken had you not taken an insurance policy.

2. Intimate claim immediately. While most companies accept oral intimations, you are safer with written
communications since this is a condition under the policy. Non-intimation can prove very costly.
Losses have a bearing on the insurer’s profitability and hence funds have to be provided for. When you
intimate a claim late no financial provision may be made for your claim and therefore it is will b
difficult to settle. Such claims are subject to scrutiny and queries within the insurance companies and
are likely to be delayed. Similarly, when you intimate a claim for a smaller amount and want to claim a
larger amount at a later time, the scrutiny ensures delays. It is better to avoid both of these.

3. Even if the loss at first sight is less than the ‘excess’, it may be prudent to inform the insurer. If the true
value of loss is found to be much more on fuller investigation, the lack of intimation to the insurer (at
that stage) will not come in the way of settlement of the claim.

4. Submit the documents asked for, at the earliest. It is best to consolidate the documents and submit them
in one bunch. This will save both your time as well as the insurer’s time. A covering letter listing or
numbering the annexed documents is prudent. In large organizations your papers travel through many
hands and it is quite possible that something is lost in official transit. If possible, get an official
acknowledgement on your covering letter from the organization concerned. This will strengthen your
hands if you have to resort to grievance mechanisms.

5. Cooperate with surveyors or other representatives of the company. They may want to take photographs
or interact with various people in your organization.

6. Preserve recovery rights: If any other person or entity can be held responsible for the loss under law,
you should lodge a monetary claim with them within statutory time limits. You are not to waive or
surrender these rights since you are insured. On settling your claim, your insurer will take over these
rights.
7. If the insurer settles your claim for a lesser value than the loss but is able to recover an amount
exceeding his settlement to you, he has to pay the excess to you. If your insurer settled the claim by
applying the principle of average, you are supposed to share the loss or the later recovery with the
insurer in the same proportion. Thus, if after settling the claim with you, the insurer is able to recover
something out of the salvage (or otherwise), he is supposed to share it with you in the same proportion
in which the insured and insurer shared the loss. It is prudent to keep note of this and ask your insurer
for your share in recoveries.
An interesting addition to this case is that if the courts award interest from the time of loss to be
recovered from the third party, you are entitled to the interest till the date of payment of your claims to
you by the insurer. The insurer would be entitled to the interest for subsequent period.

8. Not lodging a monetary claim on others will jeopardize your claim. Even if your insurer settles your
claim it may be greatly reduced. All you have to do is send a letter under registered post to the person
or entity concerned and hand over a copy to your insurer. The letter should clearly ask for the loss to be
compensated. A small letter could save you from substantially losing a claim.

Some other do’s and don’ts:

Besides what is stated above there are some things which you should do in some specific cases:-

Events Suggested Action

Fire Intimate fire brigade.

Liability claim Do not respond to claimants without written approval of

insurers.

Act of God claims Get meteorological report.

Death Obtain death certificate & post-mortem report where done.

Inform police. Lodge F.I.R

Criminal actions such as burglary,
actions resulting in death or injury or
accidents where third parties are
involved. Quote claim number/file number if allottes.

Correspondence with insurance Preserve salvage.

company
Lodge claim on them.
Salvage

Where third parties are responsible for Do not repair or alter anything without the insurer’s consent.
the loss.
In all cases of losses
General insurance : QUESTIONS and ANSWERS

WHAT IS A CLAIM?
A claim is a demand for performance of the promise made by the insurer at the time of making the contract.
These would differ under each policy. The insurer should find out:
– Policy holder has performed his part.
– Insured event has taken place.
– Who are the persons entitled to demand performance. Nomination/ Assignment/Income Tax
Notice/ Prohibitory Orders /Official Assignees Notice.

Maturity Claims= Sum Assured + Bonuses (if any) - Loan and Interest
Or
Outstanding Premiums

• The Date on which the Term is complete is the date of maturity and settlement of Sum Assured on that
date is called Maturity Claim Insurer usually sends advance intimations regarding the maturity of the
policy
• The insurer has to satisfy that There are no Assignments ,The identity of the Policyholder is proved,
The Age stands admitted, The premiums are all Paid(Not Required for a paid up policy, The original
policy is handed in, The discharge voucher is duly completed.
• The insurer is expected to make payments on the maturity date
• Post dated cheques are sent in advance after the duly signed discharge voucher is received

Difficulties encountered in settling the claim

• The original policy is reported lost, The claim can be settled by taking an indemnity bond and a copy of
advertisement in the newspaper
• The policy is covered under MWP ACT The policy proceeds will be paid to the trustee or to the
beneficiaries if they are competent to contract
• The policy is under Absolute Assignment The payment will be made to the assignee. In case of
conditional assignment if the title has reverted to the life assured he can also receive the payment
directly

IRDA Regulations
• The insurer should ask for all requirements in the case of a claim at one time and not piecemeal
• The decision to admit or to repudiate should be made 30 days of receipt of papers
• If an investigation is necessary ,it should be completed within 6 months
• Interest at 2% over the bank rate will be payable for the delays in settling the death claims
• Interest at the savings Bank rate will be paid if the insurer is ready to pay but the claimants are not
ready to collect
What is insurance?

We face a lot of risks in our daily lives. Some of these lead to financial losses. Insurance is a way of protecting
against these financial losses. For a payment (premium), an insurance company will take the responsibility of
compensating your financial losses.

What is general insurance?

Insuring anything other than human life is called general insurance. Examples are insuring property like house
and belongings against fire and theft or vehicles against accidental damage or theft. Injury due to accident or
hospitalization for illness and surgery can also be insured. Your liabilities to others arising out of the law can
also be insured and is compulsory in some cases like motor third party insurance.

Why should one insure?

One of the main reasons one should insure is to protect one’s belongings and assets against financial loss.
When one has earned and accumulated property, protecting it is prudent. The law also requires us to be insured
against some liabilities. That is, in case we should cause a loss to another person, that person is entitled to
compensation. To ensure that we can afford to pay that compensation, the law requires us to buy liability
insurance so that the responsibility of paying the compensation is transferred to an insurance company.

Who should buy general insurance?

Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each
one of us can insure our and our dependents’ health and well being through hospitalisation and personal
accident policies. To buy a policy the person should be the one who will bear financial losses if they occur.
This is called insurable interest.

What kinds of policies are there?

Most general insurance policies are annual – that is, they last for one year. Some policies are given for longer
periods – like fire insurance for residences – and some for shorter periods – like insurance for goods
transportation or for emergency medical treatment during foreign travel.

How much should I insure for?

The amount you insure for is called the sum assured. Normally a policy should cover the value of the asset –
either the market value while insuring, or the cost of replacing the asset should it be lost or destroyed. The
premium will depend on the sum assured.

Can I take two policies and get claims under both of them?

In case of an indemnity cover (one that seeks to compensate the actual loss )--for instance, a policy that covers
property, if there are two policies in vogue, the loss shall be shared by both the policies. In no case can an
insured get more than the actual pecuniary loss he or she has incurred. On the other hand, in respect of benefit
policies like the Personal Accident policy, where a fixed compensation is paid, no matter what the actual loss is
, one may obtain more than one policy.

On what basis is claim paid?

In indemnity policies, the upper limit of a claim is the sum assured and this usually applies for the period of the
policy. Certain policies, however, allow for reinstatement of the Sum Insured by payment of proportionate
premium for the remaining period of the policy. The actual claim will be the actual extent of financial loss as
validated by documents like bills. If the property is underinsured, the insured shall bear a rateable proportion of
the loss. There can be more than one claim in the policy period but the sum assured is usually the limit for the
policy period unless reinstated.Nowadays health insurance policies – which cover hospitalization costs – have
also a cashless settlement of claims. That is, you don’t have to pay for the treatment at the hospital and then
make a claim for reimbursement of the expenses. The insurance company has a service provider called the
third party administrator (TPA) health services, who liaises with the hospitals and directly makes the payment
for your treatment as per the terms of your policy and coverage.

Why do different people have different premiums ?

The premium is calculated on the extent and nature of the cover you want. A higher sum insured means a
higher rate of premium. Similarly a higher risk will be charged a higher premium. An example of this is that an
older person will have to pay a higher premium for health insurance for the same sum insured. Sometimes the
risk is higher depending on the location of risks – for example in motor insurance in areas where accidents are
higher. So the premium will vary according to the nature and severity of the risk.

If I buy a policy and don’t make a claim, it is a loss. So, why should I buy insurance?

General insurance is not meant to be for savings or investment returns. It is meant for protection. What you
pay for is the protection against a risk. To approach it as something from which returns should be obtained is
not the correct approach as there is a price to pay for protecting a property worth lakhs for a few hundred
rupees.

If there are problems with claims what can I do?

First you should write to the company and give them sufficient time to respond suitably. If they don’t respond,
or it is not a response satisfactory to you, then you can approach the appropriate judicial channel. For
complaints relating to personal insurance covers upto a value of Rs.20 lakh, you may approach the Insurance
Ombudsman in your area.

ARTICLES
1. Business of Claims – inconvenience regretted
By ARMAN OZA(irda-sep08)
 Instances of repudiation of claims on flimsy or merely technical grounds make things worse. Even if such
instances are few in number, they gather wider publicity thus tarnishing the credibility of insurers in general.
Outright rejection of a claim should be rarest of the rare case (like cases of fraud, etc.). In India, insurance had
remained a subdued activity till recently.
On the life side, aggressive marketing of endowment policies has built a public perception of insurance as an
investment and tax savings tools only. The non-life side till recently was dominated by compulsory motor
insurance. The broader role of insurance as a risk management tool is neither known to the consumer, nor has
there been any effort to educate him on these lines from the industry. As a result, while products keep selling, the
concept underlying that product always remains obscure.
Thus an endeavour on addressing the fundamental issue of improving the risk consciousness of the population
also needs to be undertaken along with other measures to expand the market. Without this the prospects for
robust market growth will always remain elusive. Leaving the naïve customer to the mercy of market forces and
learn bitter lessons on his own, would also not be a considerate way of developing the insurance market. Only a
reasonably risk literate population can deliver sustainable demand for financial services. To attain this
long term objective, IRDA in collaboration with other financial service regulators should encourage market
players to undertake better risk education in schools and colleges so that at least the next generation is much
more aware about risk and insurance. In the short run, alongside investment friendly steps like increasing
Foreign Direct Investment (FDI) limit to 49%, regulatory tightening that ensures better accountability of insurers
towards their customers is also required.
The current trend however, is towards bracing big volumes. Glossy advertisements and celebrity endorsements
portray insurance as a quick fix solution to all your financial problems. Insurance is a subject matter of
solicitation – the statutory message displayed in small font, if at all, hardly makes any sense to the consumer.
Selling insurance products ‘over the counter’ just like any other commodity only aggravates the chances of
deception at the point of sale.
Tie-up sales of insurance with loans and credit cards, ensures lower transaction costs for insurers but also
deprive the insured of his right to take informed decisions. Claims handling by general insurers is likely to
become stricter as de-tariffing puts margins under squeeze. All this, however, does not mean that the consumer
should refrain from buyinginsurance. Modern world poses diverse and complex risks, which the average citizen
can hardly afford to retain. The solution lies in showing finesse while shopping for insurance and determination
in pursuing claims. It is ultimately up to the consumer to navigate across the vying marketplace, see through the
wily promotional vibes and spot the right product that serves his needs in times of distress. The seemingly
clichéd maxim of caveat emptor continues to apply.

2. Repudiation of Claims-- WHAT TRIGGERS THEM? (irda-sep08)

By- SANJAY SETH (Theauthor is Head – Claims, IFFCO Tokio General Insurance Co. Ltd.)
(irda-sep08)
Repudiation of a contract means a refusal to perform the duty or obligation owed to the other party to refuse to
accept something or someone as true, good or reasonable. In the context of insurance contracts, the decision to
avoid the contract is then made by the insurer. The insurer needs to notify the insured of that decision and the
intention to rescind the contract. In the context of rejection of a claim it is confusing to use the term
“repudiation” to describe the insurer’s conduct. The use of the phrases “repudiation of a
claim” and “repudiation of liability” are common in the insurance industry. The better terms are “rejection of a
claim” and “denial of liability”. Insurers may refuse to pay claims for a variety of reasons. As all insurance is
an agreement (contract) between the
insured and the insurer, the insurer will always rely on the insurance agreement, which is contained in:
i) The Schedule of insurance, read together with
ii)The Policy
Some reasons that insurer may offer when rejecting (refusing payment) a claim are:
• False statements made when applying for insurance;
• Failure to disclose relevant facts when applying for insurance;
• Claim does not fall within the items insured under the policy;
• Failure of the insured to comply with the terms of the agreement;
• Fraud;
• Inordinate and unreasonable delay for the reporting of the incident which may lead to a claim;
• Failure to pay the premium on time/ at all;
• No consequential losses covered under policies;

3. Effective Claims Settlement Procedure -- Need of the Hour (irda-may06)

By - Antony Jacob. (The author is Managing Director, Royal Sundaram Alliance Insurance
Company Limited.)
Today all insurance companies would strive to achieve excellence in these areas, I would like to focus on three
areas, which pose a major challenge to the claims function.
- Catastrophe management
- Frauds
- Litigation
The Core objective of an insurance company should be to optimise a successful, effective and realistic
approach to claims handling that will save your company money and increase profits. From the insurance
company's viewpoint, claims management is a key
element in the competition between insurance providers and for the improvement of industry's public image.
There is room for improvement in this area of client service and some companies have already demonstrated
this with international certifications like ISO 9001 for their claim processes. The need of the hour is to codify
the "Best practices" to guide both the insurers and the customers.

4. Prompt Claim Settlement- The Success Mantra) (irda-may06

By- Swaraj Krishnan. (The author is Head - Claims, Bajaj Allianz General Insurance)

The customer service begins with claims settlement and need not necessarily begin with the policy issuance.
Claims settlement plays an intrinsic role in providing a whole consumer centric insurance solutions. You could
to certain extent, cherry pick the business that you want to underwrite in line with your underwriting policies,
but not the claims, which has to be paid.
-Process changes
-Use of technology
-Transparency
-Payment of claims
-Natural calamities, an opportunity
-Pro-active approach
-Claim analysis and link to Risk Management / Underwriting
-A Holistic Approach to Claims

5. Handling Claims - The Dharma of the Insurer (irda-may06)

By- Yegnapriya Bharath
For a claim to be processed smoothly and quickly, the insurer should ensure that its claims handling staff are
skilled and knowledgeable avers. It is also important for the claims handling staff to have good communication
skills. The job requires tremendous patience. The insured has just had a loss. He is bound to be agitated. At a
time when he is dogged by worries due to a financial loss, he might not pay full attention to claims procedures
and documentation requirements. It requires special skills to get the insured round to meeting with the
requirements for a claim since, from the insurer's point of view, every document and procedure is important.
Many a time, delays in claims disposal are a result of defective policies rather than due to inefficiencies in the
claims handling system. A claim may reach a deadlock because of a policy wrongly underwritten. Insurers tend
to sit on such claims rather than arrive at solutions thus driving claimants to approach adjudication channels.
The innumerable complaints we come across indicate the need for a change in claims handling systems and
procedures. The boards of companies need to be involved in the claims management philosophy of the
company. The effectiveness of the grievance redressal procedure also needs to be monitored by not only the
senior management but also the board; and improvements effected wherever necessary.

6. Third party motor claim

By- G.S.Agarwalla (the insurance times, January 2005)
A group constituted by the IRDA has proposed fixing of motor insurance premium based on a combination of
risk profile- risk factor rating system. For de-tariffing motor insurance. for instance, an age-wise break up of
over 2000 claims done by the group shows that in over 67% of the cases, the driver was below 35 years . in
contrast those aged 55 and above accounted for just 3% of the claims.
Mostly general insurance companies facing loss in third party motor insurance. Most companies are unwilling
to issue third party motor insurance.

7. Salvage as a ‘Claims Management’ tool

(the insurance times,january2008)
In our Indian general insurance industry, underwriter and adjusters manage the salvage process, relying on a
local market and tow or three bidders in their area. Loss can be mitigated by having got realized the maximum
possible realization value of the salvage.
In developed countries, salvors and salvage broker have been working with underwriters and adjusters. There
are more than 8000 salvage brokers in the united states.

8. Relevance of investigation and importance of written statement in –motor third party

claim cases. By – Abhishek kumar (the insurance times, sep 2005)
Motor insurance is the biggest portfolio in the Indian general insurance market. Every year app 84000 people
die in accident and several suffer serious injures.
Points to be considered while preparing the written statement-
-as per the S.C. ruling in ’united India Vs asha rani’ compensation is to be assessd on net income.
-ascertain the dependency of the deceased.
- application under section-170of the M V act1988, should have been applied for and obtained as per the
General insurance claims handling review

Speech by Alison Hewitt, Head of Department, Retail Firms Division, FSA

Post Magazine claims club meeting, London
17 March 2006

Good afternoon to you all and my thanks to Anthony for inviting me, once again, to speak at a Post Magazine
claims event.

In October of last year I gave an overview of claims handling from a regulatory perspective, outlined our
expectations of firms when handling the claims of retail consumers, shared with you some of our experiences
from supervision and informed you of our future thematic work in this area. I also said that claims handling is
the "Moment of Truth" for the insurance industry – an opportunity to fulfil the promise made to customers to
pay a valid claim.
Today I'll be communicating our findings from the thematic work under the broad headings of liaison with
customers and systems and controls.

I should say at the outset that we are encouraged by the review findings and it seems firms have been able to
implement, without undue difficulty, the claims handling requirements in our new rules. We have seen a lot of
positive signs that firms are starting to implement Treating Customers Fairly initiatives into their processes and
procedures and we would encourage the industry to continue to make efforts to improve best practice
particularly in the areas we have identified.

Why a thematic review?

Claims handling is one of the main areas giving rise to complaints from consumers of insurance products. This
is perhaps not surprising given that when your customers make a claim they are likely to be in some form of
distress and more sensitive to things not going the way they feel they should.

But the implementation of ICOB 7 together with the overarching principle of Treating Customers Fairly gave
us a foundation on which to ask industry, for the first time, for information on how it handles the claims of
retail consumers and to consider whether they are treating their customers fairly during the process.

As I am sure you are aware, the main purpose of ICOB 7 is to ensure 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.

This review covered the first three points. We have separately published material on conflicts of interest in a
Dear CEO letter in November 2005.
 Back to top

What we did & universe of firms

In November 2005, 34 firms completed and returned a questionnaire. My thanks to everyone who took the time
to complete it.

The cross section of firms included in this survey is representative of the market, containing both large and
diversified multinationals, and small, niche players in terms of geography, customer base and product type.
The survey focussed on Buildings, Contents, Motor, Travel, Loan and Income Protection products.

We also conducted visits to seven insurers in December and January to ask more detailed questions than we
could in the questionnaire.

As well as reviewing firms' compliance with ICOB 7, this thematic work gave us the opportunity to ask
questions on fraud prevention, outsourcing and firms' use of MI. Taken together this has also enabled us to
reach some conclusions about how far firms' claims handling procedures are compliant with the regulatory
duty to treat customers fairly, or TCF as it has become more commonly known.

As I have said, we are encouraged by the findings from this thematic review, which are summarised in a
factsheet available from our website today. It seems firms have largely successfully implemented the
requirements of ICOB 7.

I will now go on to feed back on the main areas covered in the review, highlighting the key points we found.

Liaison with customers

Service standards and communication with customers
We are interested in firms' service standards as they give us an indication whether claims are being handled
fairly, settled promptly and whether customers are being kept informed of the claims handling process.

Positively, firms compared well against the guidance given in ICOB 7 around service standards. The large
majority aim to respond to notification of a new claim, deal with customer letters/emails and make payment
from the date of settlement each within 5 days. 31 firms reported that they always or nearly always meet their
service standards.
Where firms are not meeting their service standards, systems and controls are in place to identify reasons for
underperformance and address failure to meet them. Good news so far.

However, we received a low response rate, around 60%, when we asked firms for their service standard for
updating customers on the progress of their claim and there was no clear consensus of opinion from those who
did respond. It seems that firms often update customers 'as and when required' or 'depending on customer
expectations'.
This is all very well, but can you be sure what is required or what customers' expectations are? Whilst a
proportionate approach to updating is sensible firms could be more proactive, updating customers periodically
rather than on an ad hoc basis. This is particularly important where a claim may take a long time to settle and is
part and parcel of managing customer expectations. It may seem obvious to you that a subsidence claim will
cover 2 summers and 2 growth periods before it can be settled, but this won't be obvious to a customer whose
only other experience of claiming on their household policy was for accidental damage to their TV which was
resolved within 10 days.

Back to top

Non- or part-payment of a claim continues to be an area where customers express dissatisfaction. This largely
stems from firms not providing customers with clear, jargon-free information about why their claim has been
rejected or not settled in full.

Firms report that they explain the reasons for this but customers are not always offered the choice of receiving
the reason for rejection or part-payment in writing. On one visit we found one claims area of a firm complying
with this rule with another claims area completely unaware that the rule exists. It is important that customers
are given the choice of receiving this information in writing. Reasons for repudiation may be too complex or
lengthy to adequately give over the phone. Customers are unlikely to feel that they have been treated fairly if
you are not prepared to offer this information in writing.

Keeping customers informed during the claims handling process and clearly explaining the reasons for
rejection is a simple way to make customers feel that they are being treated fairly and prevent complaints being
made.

We asked what the most common reason for the rejection of a claim was since 1 January 2005. 19 firms
reported that the most common reason was the claim being outside scope of cover.
We are surprised by the response to this question. Why are your customers claiming for things not covered by
their policy?

I refer back to our review of general insurance disclosure documentation last December, in which we
highlighted the need for you to consider a review of your product disclosure documents, to ensure that
customers have clear and understandable information about the products and services being offered. For
example, have exclusions been highlighted satisfactorily; are policy conditions unnecessarily complex and
difficult to understand? Additionally, are the features of the product clearly and fairly reflected in the
marketing material in a way that customers can understand and does the sales process ensure that the product is
appropriate for the customer?

We accept that some claims are fraudulently made (on which more later). We also accept that there are sensible
things customers can do to protect their own best interests when purchasing insurance products. Over time, we
hope to see more customers effectively using the material they have been given to inform their purchasing
decisions, which will lead to greater consumer understanding of the nature of the cover purchased and fewer
erroneous claims being made.
Rejected claims can provide firms with useful intelligence about how well their customers are served through
the lifetime of a product. It is good TCF practice to consider whether any steps can be taken to mitigate against
the issue arising again in future.
Complaints
Fair and efficient complaint-handling plays a key role in consumer protection, as mistakes happen in even the
best run firms. Complaints received should be seen as a valuable indicator of the effectiveness of a firm's
systems, pointing to problems in a firm's operations which need to be addressed. The need for regulatory
intervention is reduced when we can rely on firms' complaint-handling mechanisms to deal properly with
consumers who feel they have not been treated fairly.

Most of the firms we saw have a dedicated complaints handling team. There is the potential, where firms do
not have a dedicated team, 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 need careful management.
We visited one firm which has recently introduced a dedicated complaints handling team and subsequently
seen the number of complaints increase. This is not because the firm has become any poorer in its dealings
with customers, but because all staff have been encouraged to consider complaints positively and more
expressions of dissatisfaction are being recorded as a complaint. Interestingly, although the number of
complaints has increased the average time taken to deal with them by the dedicated team has decreased.

We have said in the past that more efficient ways of handling complaints may mean that complaints go up in
the short term. This is not necessarily a bad thing and might indicate that a firm is treating its customers more
fairly. Under TCF, the number of complaints is less important than the way in which they are handled by firms
and how they then subsequently act. It is important that firms conduct effective root cause analysis of their
complaints MI and actively consider how they might improve their processes.

Systems and controls

A recurrent comment from firms was that ICOB 7 has made them formalise and document some of the things
already being done which had been a beneficial exercise for them in thinking through whether they do, in fact,
treat their customers fairly.

Staff
Many firms put their staff through a formal, claims specific induction programme, with a higher number giving
their new recruits a mentor and access to a technical specialist. This suggests that for some firms an ad hoc,
'pick it up as you go along' approach may prevail. In these cases, it may be more difficult for a firm to
demonstrate the competency of their staff if asked to do so. Whilst mentors or buddies are valuable training
tools, the mentor will have his 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. One firm described this as "building
foundations on sand."
Most of you also include service standards as part of staff objectives. This can be a positive measure of how
customers are treated. However, these service standards should not encourage staff to concentrate solely on the
volume of cases handled at the expense of quality. We see good industry practice where service standards
relate to qualitative as well as quantitative measures.
Fraud detection and prevention
The reduction of financial crime is one of the FSA's statutory objectives. In addition, we aim to help retail
consumers achieve a fair deal. A recent ABI survey found that fraud on motor, travel and home insurance is
estimated to cost the industry around £1bn every year. Ultimately the cost of such fraud is borne not by
insurers but by consumers.
Overall, we have seen good progress from the insurance industry in its response to tackling fraud. Initiatives
are being set up to spread good practice between firms and the Insurance Fraud Bureau, due to start operating
this year, will improve insurers' ability to detect and prevent organised insurance fraud.

Encouragingly, the majority of firms reported that they share data relating to fraud with other insurers in the
same market and use data-mining software, voice stress analysis or cognitive interviewing techniques in their
attempts to identify potential fraud. The majority of firms have also increased their anti-fraud activity and
spend and of those firms that increased their anti-fraud activity in the past year, 65% recorded an increase in
the amount of fraud detected.
A small number of firms surveyed (7) have no counter-fraud strategy and this was not confined to the smaller
firms in our sample. We will be going back to those firms.

Some firms seem to consider themselves immune to fraud, either because of the profession of their customer
base, or because the firm has a longstanding relationship with the policyholder and their families. Other firms
think that internal fraud is an impossibility because they are 'one big happy family' or because 'it just wouldn't
happen here', whereas in reality internal fraud is cited as one of the main threats to firms and is growing fast.
We expect firms to take reasonable care to establish and maintain effective systems and controls for countering
the risk that the firm might be used to further financial crime. In claims units good practice would be to
maintain segregation of duties so that claims handlers are not able to register, handle and authorise for payment
the same claim.

A more detailed FSA review of firms' high level management of fraud risk can be found on our website in a
publication of the same name and we would encourage firms to continue to actively tackle fraud wherever they
find it.

However, any anti-fraud activity must be balanced with the need to treat customers fairly. Some firms adopt an
anti-fraud strategy of invoking a 'proof of loss' clause, almost as a matter of course. Most people do not have
receipts for every item they have ever bought or that has been given to them. Most people do not keep
photographs of their valuable items. If production of receipts or photographs is a requirement for a claim to be
made then this should be clearly explained to the customer at inception of the policy and not used as a tool to
unreasonably reject a claim where there is no clear evidence of fraud.

Sometimes insurers will pay a claim but will not offer to renew a policy, again where fraud is suspected but not
proven. This is a valid contractual right that you as insurers have but an option that needs to be weighed against
the knowledge that it will be very difficult, if not impossible, for the customer to obtain insurance cover again.
Outsourcing
Outsourcing is increasingly used as a means of both reducing costs and achieving strategic aims and can be a
very effective tool in doing so. But it may also affect a firm's exposure to operational risk through reduced
control over people, processes and systems used in outsourced activities. It is worth emphasising that an
insurer cannot contract out of its regulatory obligations and should take reasonable care to supervise the
discharge of outsourcing functions.
Many customer complaints stem from poor service received from outsourced service providers. From our
review it seems that some firms only look at their outsourcers when something has gone wrong, by which time
customers may already have been disadvantaged.

From our review, 32 firms employ a third party to handle their claims but not all of these have a formal
reselection process and conduct regular audits. 20 firms have changed outsourcer/supplier in the last 3 years as
a result of their failure to meet key service standards - so problems are being identified, but we would
encourage firms to formalise their systems and controls in this regard through service level agreements and risk
management frameworks, focussing on:

• the identification of quantitative and qualitative performance targets to assess the adequacy of service
provision to both the firm and its clients; and
• the evaluation of performance and remedial action and escalation processes for dealing with inadequate
performance.

Formal reselection should keep outsourced service providers on their toes, driving competition and ultimately a
better service to the customer and return to the insurer.

Conclusion
Overall, most firms we reviewed are handling claims well, and we are encouraged by our findings. We will
feed back findings to firms who took part in the review and continue to monitor claims handling performance
in the industry through routine supervision work.

Thank you.