Avoiding Insurance Disputes
"If there is no plan, nothing can go wrong!". However, as we all know, it is better to be prepared, and a proactive approach is usually more effective than a reactive one. Insurance claims occur in many different circumstances and it is often difficult to predict the problems that can lead to a contentious dispute. A difference in perspective can easily lead to a different opinion on how a particular policy should respond to the specific circumstances of a claim.
This article provides some guidance on the tasks required to complete a successful insurance claim. Despite the varied nature of insurance claims, the claims management process can be reduced to the following basic elements:
The Initial Response
Each claim presents its own combination of challenges. There are many different elements to deal with. A systematic approach helps to ensure that every facet of the claim is considered, monitored and dealt with at the appropriate time. Using spreadsheets, a simple planning and status monitoring tool can be developed to provide a busy risk manager with a convenient means for both managing and monitoring the progress of a claim. With this approach, the key claims data and current status are readily available for reference.
Many claims run into late notification problems - particularly if there are short notice periods. Brokers may apply pressure to get the insurers to relax the reporting criteria. However, it is better to ensure that effective reporting procedures are in place. These procedures need to enshrine the preservation of rights and remedies, as insurers are entitled to expect assureds to take all appropriate measures to mitigate their loss.
If appropriate procedures are established from the outset of a claim, this can substantially reduce the time and costs required to collect the necessary information. In practice, operating expenditure is often allocated to inappropriate cost codes. An extensive and expensive reallocation of costs then has to be conducted, in order to identify correctly the recoverable amounts. Time spent on these activities is unproductive, and the initial gross claim estimates may prove to be misleading.
The insurers will appoint loss adjusters in accordance with the policy conditions. Various specialists may also be appointed, either on a joint basis or on behalf of each party. It is essential to ensure at the outset complete clarity about who is acting for whom, and how the various reports will be issued and distributed.
As soon as a loss has been notified, the leading insurer's claims adjuster will be under pressure to set a reserve. The assured will usually be reluctant to commit to a number, until more information is known about the loss. At this stage, it is appropriate to provide a highly qualified order of magnitude figure, which can be updated as the claim progresses.
Good communication and the avoidance of surprises pay dividends. From the outset of the claim, a system should be established for providing insurers and their loss adjusters with regular reports on the current loss estimate and claim status. The frequency of these reports will depend on the magnitude of the loss and the rate of change in the status of the claim.
Risk managers must also ensure that all relevant parties - co-venturers, contractors, regulating agencies, etc. - have been properly informed of the event. If damage has been sustained to third party property, the position on all relevant liability and insurance issues must be established as early as possible in the claims process.
An initial assessment of how the policy may be applied to the specific circumstances of the claim is advisable. This will highlight potential issues that need to be investigated or included in
the data collection exercise. As a result, disputed issues and unrealistic claim expectations are more likely to be avoided.
