CHAPTER 9

CLAIMS PROCEDURE

Chapter Introduction

At the core of any insurance contract is the promise made at the beginning i.e. to indemnify the insured in the event of a loss. This chapter talks about the procedures and documents involved, from the time loss takes place, making it easier to comprehend the entire process of claims settlement. It also explains the method of dealing with disputed claims either by insured or insurer.

Learning Outcomes

A. Claims settlement process

After studying this chapter, you should be able to:
1. Argue the importance of claim settlement functions
2. Describe the procedures for intimation of loss
3. Appraise claim investigation and assessment
4. Explain the importance of surveyors and loss assessors
5. Illustrate the contents of claim forms
6. Define claims adjustment and settlement

A. Claims settlement process

1. Importance of settling claims

The most important function of an insurance company is to settle claims of policyholders on the happening of a loss event. Insurer fulfils this promise by providing prompt, fair and equitable service in either paying the policyholder or paying claims made against the insured by a third party.

Insurance is marketed as a financial mechanism to provide indemnity on losses due to insured perils. Were it not for insurance and the claim settlement process, recovery to normal state after an unfortunate accident / event might be slow, inefficient and difficult.

One of the non-life insurance companies had the inscription “Pay if you can; repudiate if you must” in its board room. That is the spirit of the noble business of insurance.

Settling claims professionally is regarded the biggest advertisement for an insurance company.

a) Promptness

Prompt settlement of claims, whether the insured is a corporate client or an individual or whether the size of the loss is big or small is very important. It must be understood that the insured needs insurance compensation as soon as the possible after the loss.

If he gets the money promptly, it is of maximum use to him. It is insurance company‟s duty to pay to pay the claim amount when insured needs it most
– as early as possible after the loss.

b) Professionalism

The insurance officials consider each and every claim on its merits and do not apply prejudicial or pre-conceived notions to reject the claim without examining all the documents that would answer the following questions.

i. Did the loss really happen?
ii. If so, did the loss making event really cause the damage?
iii. The extent of damage out of this event. iv. What was the reason for the loss?
v. Was the loss covered under the policy?
vi. Is the claim payable as per the contract/ policy conditions?
vii. If so, how much is payable?
The answers to all these questions need to be found out by the insurance company.

Processing claims is an important activity. All claims forms, procedures and processes have been carefully designed by the company to ensure that all claims „payable‟ under the policy are promptly paid and those that are not payable are not paid.

The agent, being the representative of the company known to the insured, has to ensure that all the relevant forms are properly filled up with correct information, all documents evidencing the loss are attached and all prescribed procedures are followed in a timely manner and duly submitted to the company. The role of the agent at the time of loss has already been discussed earlier.

2. Intimation or Notice of Loss

Policy conditions provide that the loss be intimated to the insurer immediately. The purpose of an immediate notice is to allow the insurer to investigate a loss at its early stages. Delays may result in loss of valuable information relating to the loss. It would also enable the insurer to suggest measures to minimise the loss and to take steps to protect salvage. The notice of loss is to be given as soon as reasonably possible.

After this initial check/scrutiny, the claim is allotted a number and entered in the claims register, with details like policy number, name of insured, estimate of amount of loss, date of loss, the claim is now ready to be processed.

Under certain types of policies (e.g. Burglary) notice is also to be given to police authorities. Under cargo rail transit policies, notice has to be served on the Railways.

3. Investigation and assessment
a) Overview

On receipt of the claim form, from the insured, the insurers decide about investigation and assessment of the loss. If the claim amount 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 who are specialists in loss assessment. The assessment of loss by independent surveyors is based on the principle that since both the insurers and insured are interested parties, the unbiased opinion of an independent professional person should be acceptable to both the parties as well as to a court of law in the event of any dispute.

b) Claims assessment

In case of fire, claim is assessed on the basis of a police report, investigators report if cause is unknown and a survey report. 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.
Under policy conditions, the insurers reserve the right to arrange an independent medical examination. Medical evidence is also required in support of “Workmen‟s Compensation” claims. Livestock and cattle claims are assessed on the basis of the report of a veterinary doctor.

Information

On receipt of intimation of loss or damage insurers check whether:
1. The insurance policy is in force on the date of occurrence of the loss or damage
2. The loss or damage is caused by an insured peril
3. The property (subject matter of insurance) affected by the loss is the same as insured under the policy
4. Notice of loss has been received without delay.

Motor third party claims involving death and personal injuries are assessed on the basis of doctor‟s report. These claims are dealt by Motor Accident Claims Tribunal and the amount to be paid is decided by factors like the age and income of the claimant.
Claims involving third party property damage are assessed on the basis of a survey report.

• Motor own damage claim is assessed on the basis of surveyors report.
• It may require police report if third party damage is involved.

Information
Investigation is different from the assessment of loss. Investigation is done to ensure that a valid claim has been made and verify the important details and doubts like absence of insurable interest, suppression or misrepresentation of material facts, deliberately creating the loss, etc. are ruled out.

Health insurance claims are assessed either in house or by third party administrators (TPA‟s) on behalf of the non-life insurance companies. The assessment is based on the medical reports and expert opinion.

Insurance surveyors undertake the work of investigation also. It helps if a surveyor gets on to the job as early as possible. Therefore, the practice is to appoint the surveyor, as soon as possible after the intimation of the claim is received.

4. Surveyors and Loss Assessors a) Surveyors

Surveyors are professionals licensed by IRDA. They are experts in inspecting
and evaluating losses in specific areas. Surveyors are generally paid fees by the insurance company, engaging them. Surveyors and loss assessors are hired by general insurance companies normally, at the time of a claim. They inspect the property in question, examine and verify the causes and circumstances of the loss. They also estimate the quantum of the loss and submit reports to the insurance company.

They also advise insurers, regarding appropriate measures to prevent further losses. Surveyors are governed by provisions of the Insurance Act, 1938, Insurance Rules 1939 and specific regulations issued by IRDA. Claims made outside the country in case of „Travel Policy‟ or „Marine Open Cover‟ for exports, are assessed by the claims settling agents abroad named in the policy.

These agents may assess the loss and make payment, which is reimbursed by the insurers along with their settling fees. Alternatively, all the claims papers are collected by the insurance claim settling agents and submitted to the insurers, along with their assessment.

Important

Section 64 UM of Insurance Act

Where, in the case of a claim of less than twenty thousand rupees in value on any policy of insurance it is not practicable for an insurer to employ an approved surveyor or loss assessor without incurring expenses disproportionate to the amount of the claim, the insurer may employ any other person (not being a person disqualified for the time being for being employed as a surveyor or loss assessor) for surveying such loss and may pay such reasonable fee or remuneration to the person so employed as he may think fit.

5. Claim forms

The contents of the claim form vary with each class of insurance. In general the claim form is designed to get 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.

Example

An example of information sought in a fire claim form is given here under:
i. Name of the insured, policy number and address
ii. Date, time, cause and circumstances of the fire
iii. Details of damaged property
iv. Sound value of the property at the time of fire. Where the insurance consists of several items under which the claim is made. [The claim must be based on actual value of property at the place and time of occurrence after allowance for depreciation, wear and tear (unless the policy in respect of building, plant and machinery is on “reinstatement value” basis). It shall not include profit]
v. Amount claimed after deduction of salvage value
vi. Situation and occupancy of the premises in which the fire occurred
vii. Capacity in which the insured claims, whether as owner, mortgage or the like
viii. If any other person is interested in the property damaged
ix. If any other insurance is in force upon such property if so, details thereof

This is followed by the declaration as to the truth and accuracy of the statement of in the form and signature of the insured and the date.

A sample of fire claim form of an insurance company is given as “Exhibit 1” in this chapter.

The issuance of claim form by the insurance company does not imply or mean that liability for the claim is admitted by insurers. Claim forms are issued with the remark „without prejudice‟.

a) Supporting documents

In addition to the claim form, certain documents are required to be submitted by the claimant or secured by the insurers to substantiate the claim.
i. For fire claims, a report from the Fire Brigade would be necessary.
ii. For cyclone damage, a report from the Meteorological office may be called for
iii. In burglary claims, a report from the Police may be necessary.
iv. For fatal accident claims, reports may be necessary from the Coroner and the Police.
v. For motor claims, the insurer may like to examine driving license, registration book, police report etc.
vi. In marine cargo claims, the nature of documents varies according to the type of loss i.e. total loss, particular average, inland or overseas transit claims etc.

6. Loss Assessment and Claim settlement

Claims assessment is the process of determining whether the loss suffered by the insured is caused by the insured peril and there is no breach of warranty.

Settlement of claims has to be based on considerations of fairness and equity. For a non-life Insurance company, expeditious settlement of claim is the benchmark of efficiency for its services. Each company has internal guidelines about time taken in claims processing, which its employees follow.

This is generally known by the term “Turnaround time” (TAT). Some insurers have also put in place, facility for the insured to check claim status online from time to time. Some non-life insurance companies have also set up claims hub for speedy processing of claims.

Important

Important aspects in an insurance claim

i. The first aspect to be decided is whether the loss is within the scope of the policy. The legal doctrine of proximate cause provides guidelines to decide whether the loss is caused by an insured peril or an excluded peril. The burden of proof that the loss is within the scope of the policy is upon the insured. However, if the loss is caused by an excluded peril the onus of proof is on the insurer.
ii. The second aspect to be decided is whether the insured has complied with policy conditions, especially conditions which are precedent to „liability‟.
iii. The third aspect is in respect of compliance with warranties. The survey report would indicate whether or not warranties have been complied with.
iv. The fourth aspect relates to the observance of utmost good faith by the proposer, during the currency of the policy.
v. On the occurrence of a loss, the insured is expected to act as if he is uninsured. In other words, he has a duty to take measures to minimise the loss.
vi. The sixth aspect concerns the determination of the amount payable. The amount of loss payable is subject to the sum insured. However, the amount payable will also depend upon the following:

• The extent of the insured‟s insurable interest in the property affected
• The value of salvage
• Application of underinsurance
• Application of contribution and subrogation conditions

a) Categories of claim

The claims which are dealt with in insurance policies fall into the following categories:

i. Standard claims

These are claims which are clearly within the terms and conditions of the policy. The assessment of claim is done keeping in view scope and the sum insured opted for and other methods of indemnity laid down for various classes of insurance.
The claim amount payable by the insurer takes into account various factors like valuation at time of loss, insurable interest, salvage prospects, loss of earnings, loss of use, depreciation, replacement value depending on the policy taken.

ii. Non-Standard claims

These are claims where the insured may have committed a breach of condition or warranty. The settlement of these claims is considered subject to rules and regulations framed by the non-life insurance companies.

iii. Condition of average or average clause

This is a condition in some policies which penalises the insured for insuring his property at a sum insured less than its actual value known as underinsurance. In the event of a claim the insured gets an amount that is proportionately reduced from his actual loss in accordance to the amount underinsured.

iv. Act of God perils - Catastrophic losses

Natural perils like storm, cyclone, flood, inundation, and earthquake are termed as “Act of God” perils. These perils may result in losses to many policies of insurer in the affected region.

In such major and catastrophic losses, the surveyor is asked to proceed to the loss site immediately for an early assessment and loss minimisation efforts. Simultaneously, insurers‟ officials also visit the scene of loss particularly when the amount involved is large. The purpose of the visit is to obtain an immediate, on the spot idea of the nature and extent of loss.

Preliminary reports are also submitted if the surveyors face some problems in regards to the assessment and may desire guidance and instructions from insurers who are thus given an opportunity to discuss the issues with the insured, if necessary.

v. On account payment

Apart from preliminary reports, interim reports are submitted from time to time where repairs and/or replacements are made over a long period. Interim reports also give the insurer an idea of the development of assessment of loss. It also helps in recommendation of "On account payment" of the claim if desired by the insured. This usually happens if the loss is large and the completion of assessment may take some time.

If the claim is found to be in order, payment is made to the claimant and entries made in the company records. Appropriate recoveries are made from the co-insurers and reinsurers, if any. In some cases, the insured may not be the person to whom the money is to be paid.

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. Similarly claims for “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 duly endorsed in his favour, at the time of the loss.

b) Discharge vouchers

Settlement of the claim is made only after obtaining a discharge under the policy. A sample of discharge receipt for claims (under personal accident insurance) for injuries is worded along the following lines: (may vary from company to company)

c) Post settlement action

The action taken after settlement of the claim in relation to underwriting varies from one class of business to another.

Example

Sum insured under a fire policy stands reduced to the extent of the amount of claim paid. However, it can be reinstated on payment of pro-rata premium, which is deducted from the amount of claim paid.

On payment of the capital sum insured under a personal accident policy, the policy stands cancelled. Similarly, payment of a claim under individual fidelity guarantee policy automatically terminates the policy.

d) Salvage

Salvage generally refers to damaged property. On payment of loss, the salvage belongs to insurers.

Example

When motor claims are settled on total loss basis, the damaged vehicle is taken over by insurers. Salvage can also arise in fire claims, marine cargo claims etc.

Salvage is disposed off according to the procedure laid down by the companies for the purpose. Surveyors, who have assessed the loss, will also recommend methods of disposal.

e) Recoveries

After settlement of claims, the insurers under subrogation rights applicable to insurance contracts, are entitled 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 respective laws applicable. Thus, insurers can recover the loss from shipping companies, railways, road carriers, airlines, port trust authorities etc.

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 before the settlement of the claim.

7. Disputes related to claims

Despite best efforts, there could be reasons for either delay or non-payment (repudiation) of claim, either due to delay in notice of loss or non-submission of documents by clients.
Apart from these, the most common reasons, to name a few are:

• Non-disclosure of material facts
• Lack of coverage
• Loss caused by excluded perils
• Lack of adequate sum insured
• Breach of warranty
• Issues regarding quantum due to underinsurance, depreciation, etc.

All this could cause considerable grief to the insured at a time when he is already suffering from financial constraints arising due to losses.
In order to reduce his sufferings, grievance redressal and dispute handling procedures are well laid out in the policy itself. Policies of fire or property have
the condition of “Arbitration” in the policy itself.

a) Arbitration

Arbitration is a method of settling disputes arising out of contracts. Arbitration is done in accordance with the provisions of the Arbitration and Conciliation Act, 1996. The normal method of enforcing a contract or settling 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.

Arbitration may be done by a single arbitrator or by more than one, chosen by the parties to the dispute themselves. In the event of a single arbitrator, the parties have to agree about that person. Many commercial insurance policies contain an arbitration clause stating that disputes will be subject to arbitration. Fire and most miscellaneous policies also contain 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. Normally the arbitrator‟s decision is considered final and binding on both the parties.

The wording of the condition varies from policy to policy. Generally, it provides as follows:

i. The dispute is submitted to the decision of a single arbitrator to be appointed by the parties, or in the event of any disagreement between them upon appointment of a single arbitrator, to the decision of two arbitrators each appointed by the parties.
ii. These two arbitrators shall appoint an Umpire, who presides at the meetings. The procedure during these meetings resembles that of a court of law. Each party states his case, if necessary, with the help of a counsel and witnesses are examined.
iii. If the two arbitrators do not agree on a decision, the matter is submitted before the Umpire, who makes his award.
iv. Costs are awarded at the discretion of the arbitrator/arbitrators or Umpire making the award.

Disputes relating to question of liability are to be settled through litigation.

Example

If the insurers contend that the loss is not payable because it is not covered under the policy, the matter has to be decided by a Court of Law. Again, if the insurers refuse to pay the claim on the ground that the policy is void because it was obtained through fraudulent non-disclosure of material facts (breach of the legal duty of „utmost good faith‟), the issue has to be resolved through litigation.

Note: There is no arbitration condition in marine cargo policies.

8. Other dispute resolution mechanisms

As per IRDA regulations, all policies have to mention about the grievance redressal system available to the insured in the event the insured is dissatisfied with the service of the insurer for any reason.
In case of claims under personal lines of business, a dissatisfied insured can approach the ombudsman, the details of whose office are provided in the policy.

Test Yourself 1

Which of the following activities would not be categorised under professional settlement of claims?
I. Seeking information relating to the cause of the loss
II. Approaching the claim with a prejudice
III. Ascertaining whether the loss was a result of an insured peril
IV. Quantifying the amount payable under the claim

Test Yourself 2

Raj is involved in a car accident. His car is insured under a motor insurance policy. Which among the following is the most appropriate thing for Raj to do?
I. Notify the insurer of the loss as soon as reasonably possible
II. Notify the insurer at the time of insurance renewal
III. Damage the car further so as to receive a bigger compensation
IV. Ignore the damage

Test Yourself 3

Compare claims investigation and claims assessment.
I. Both claims investigation and assessment are the same thing
II. Investigation tries to determine the validity of the claim whereas assessment is more concerned with the cause and extent of the loss
III. Assessment tries to determine the validity of the claim whereas investigation is more concerned with the cause and extent of the loss
IV. Investigation is done before the claim is paid and assessment is done after the claim is paid

Test Yourself 4

Who is the licensing authority for surveyors?
I. Surveyor Association of India
II. Surveyor Regulatory and Development Authority
III. Insurance Regulatory and Development Authority
IV. Government of India

Test Yourself 5

Which among the following documents is most likely to be requested while examining a cyclone damage claim?
I. Coroner‟s report
II. Report from Fire Brigade
III. Police report
IV. Report from Meteorological Department

Test Yourself 6

Under which principle can the insurer assume the rights of the insured in order to recover from a third party the loss paid under a policy?
I. Contribution
II. Discharge
III. Subrogation
IV. Indemnity

Test Yourself 7

If the insurer decides that a certain loss is not payable because it is not covered under the policy then who decides on such matters?
I. Insurer‟s decision is final
II. Umpire
III. Arbitrator
IV. Court of Law

Summary

a) Settling claims professionally is regarded as the biggest advertisement for an insurance company.
b) Policy conditions provide that the loss be intimated to the insurer immediately.
c) If the claim amount is small, the investigation to determine the cause and extent of loss is done by an officer of the insurer. But for other claims it is entrusted to independent licensed professional surveyors who are specialists in loss assessment.
d) In general the claim form is designed to get full information regarding the circumstances of the loss, such as date of loss, time, cause of loss, extent of loss, etc.
e) Claims assessment is the process of determining whether the loss suffered by the insured is caused by the insured peril and there is no breach of warranty.
f) Settlement of the claim is made only after obtaining a discharge under the policy.
g) Arbitration is a method of settling disputes arising out of contracts.

Key terms

a) Intimation of loss
b) Investigation and Assessment
c) Surveyors and Loss Assessors
d) Claim forms
e) Adjustment and Settlement
f) Disputes in claim settlement
g) Arbitration

Answers to Test Yourself

Answer 1

The correct option is II.
Professional settlement of claims does not involve approaching a claim with prejudice.

Answer 2

The correct option is I.
A claim needs to be notified as soon as reasonably possible.

Answer 3

The correct option is II.
Investigation tries to determine the validity of the claim whereas assessment is more concerned with the cause and extent of the loss.

Answer 4

The correct option is III.
IRDA is the licensing authority for surveyors.

Answer 5

The correct option is IV.
Report from Meteorological Department is most likely to be requested while examining a cyclone damage claim.

Answer 6

The correct option is III.
Under the principle of subrogation the insurer can assume the rights of the insured in order to recover from a third party the loss paid under a policy.

Answer 7

The correct option is IV.
If the insurer decides that a certain loss is not payable because it is not covered under the policy then such matters will be decided in the Court of Law.

Self-Examination Questions

Question 1

Intimation of loss is to be made: I. at the exact time of the loss
II. after 15 days
III. as soon as reasonably possible
IV. any time after the loss

Question 2

Investigation of loss is done by: I. unlicensed surveyor
II. licensed and qualified surveyor
III. insured‟s representative
IV. any person with a degree in engineering

Question 3

For personal accident claims, report of is necessary. I. Surveyor
II. Doctor
III. Police
IV. Coroner

Question 4

Independent surveyors are required for claims above_ Insurance Act.
I. Rs. 40,000
II. Rs. 15,000
III. Rs. 20,000
IV. Rs. 25,000

Question 5

Claims assessed outside the country in case of travel insurance polices are assessed by:
I. Indian surveyors
II. Local surveyors in the country of loss
III. Insurer‟s own employees
IV. Claims settling agents named in the policy

Question 6

In case of a fire claim, a report from the fire brigade: I. is not required
II. is optional for the insured
III. is necessary
IV. is part of the police report

Question 7

What is TAT?
I. Time and Turn
II. Till a Time
III. Time and Tide
IV. Turnaround Time

Question 8

On payment of loss, salvage belongs to: I. Surveyors
II. Insured
III. Insurer
IV. Local authorities

Question 9

Arbitration is a claim settlement process done . I. in the court of law
II. by a group of surveyors
III. by arbitrator(s) chosen by the parties involved
IV. arbitrarily by the insurance company‟s employees

Question 10

Insurers under right of subrogation are allowed to recover the loss paid from: I. Shipping companies only
II. Railways and road carriers only
III. Airlines and Port Trusts only
IV. Shipping companies and railway and road carriers and airlines and port trusts

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PRACTICE QUESTIONS AND ANSWERS CHAPTER 9

Answers to Self-Examination Questions

Answer 1

The correct option is III.
Intimation of loss is to be made as soon as reasonably possible.

Answer 2

The correct option is II.
Investigation of loss is done by licensed and qualified surveyor.

Answer 3

The correct option is II.
For personal accident claims report of a Doctor is necessary.

Answer 4

The correct option is III.
Independent surveyors are required for claims above Rs 20000 as per the
Insurance Act.

Answer 5

The correct option is IV.
Claims assessed outside the country in case of travel insurance policies are assessed by claims settling agents named in the policy.

Answer 6

The correct option is III.
In case of a fire claim, a report from the fire brigade is required.

Answer 7

The correct option is IV. TAT is turnaround time.

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CHAPTER 9 PRACTICE QUESTIONS AND ANSWERS

Answer 8

The correct option is III.
On payment of loss, salvage belongs to insurer.

Answer 9

The correct option is III.
Arbitration is a claim settlement process done by arbitrator(s) chosen by the parties involved.

Answer 10

The correct option is IV.
Insurers under right of subrogation are allowed to recover the loss paid from shipping companies and railway and road carriers and airlines and port trusts.

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PRACTICE QUESTIOHS ...0 ...SWERS CHAPTER 9

Fire Insurance Claim form

?olicy Ritk location Sum huured Enim;ud totai S.I. &

Number Covtrtd amount oflou eontl'ibution

- the c.urrency of policy

ProKi mate cause shoul d be coveredunder I

(?lease descr ibethe drcumsu.nces leading to the loss --:! Contri but ion condit ion J

\.interests

S. Whothor loss intimated

(1) Pollet Additional documents huurtd Is eovt rtd to

(2) Fire Br igade e.orroborat i ng t he loss t he extent of his

(b) Date of incident

(c) cl,.im >{_ Additional information for vtrifi tition

(e) Amount of claim paid/Outstanding Rs. J

PLACE;

DATE: Signature of£n5urd

Fire Cl::.im No.

Premium ?ayment D.O. Code No. Officer' t Code No. ?articular t CodtNO. CodeNo. Rtctlpt i'lo 80/ CD

-

- -

-Rs. -j

259

CHAPTER 9 PRACTICE QUESTIONS AND ANSWERS

260 IC-34 GENERAL INSURANCE