This is another departmental description that may
involve overlap with other sections or departments mentioned above or below.
The general areas of concern here may be:
(a) General or Life insurance? : this is a most
important question, since the policy document with each has a very different
significance. With general insurance, technically there need not be a policy
(although there almost invariably is) and it is seldom necessary to produce the
original policy document when making a claim. With life insurance, however, the
contract is non-cancellable by the insurer, and the policy documents are
required to be produced at the time of a claim.
(b) Life insurance policies: as mentioned above,
these must be produced when a claim is made. A mistake in a life policy is
potentially much more serious than with General Business, especially since the
policy may be assigned to another person and/or used as collateral with
a loan and any assignees are expected to be relying on the veracity of the
policy.
(c) New business procedures: especially with Life
business (as noted) the process of verification and checking, both for factual accuracy
and errors in document preparation, is very important. With any class of
business, it is important that the policy should be prepared and issued as
efficiently and as impressively as possible, for reasons that are obvious.
(d) Other procedures: this topic embraces such matters
as error handling, policy correction, endorsement preparation and renewal
procedures. With life insurance, once more, the great importance of the actual
payment of the first premium must be considered. In other classes, the
contract may commence without the receipt of a premium (often a non-marine
policy requires that the insured ‘has paid or agreed to pay the premium’). With
life insurance, the usual practice is that the existence of the contract
depends upon the first premium being received.
CLAIMS
Once more, there are significant differences between
Life and General Business claims. Specifically, the implications include:
(a) Life insurance claims: obviously, there will
only be one death claim. It is quite essential for the claims handler to check
each claim with the utmost care, as all sorts of considerations are involved,
such as: (i) possible disputes or complications, for instance, problems
may arise when the primary beneficiary cannot be traced, or more than one
person lodges a claim as alleged assignees; (ii) possible outstanding policy
loans; (iii) possible assignment, so that the claimant is not the
original policyholder; (iv) uncertainties over actual death or the
identity of the deceased; (v) dividend/bonus considerations with participating/with-profit
policies. For similar reasons to those pertaining to underwriting (see 4.5
above), life insurance claims handling is frequently centralised.
(b) General insurance claims: the range of
different types of claims is much wider than with life insurance. Also, it is
quite possible that the amounts involved are enormous. Therefore, equal
care should be taken in verification, although most claims being relatively
small, the work is much more likely to be decentralised, sometimes with fairly
junior staff having some degree of authority in claim settlement.
[Example: Claims may be relatively trivial, such as the
loss of a camera, or exceedingly complex, such as a major explosion at a large
power station.]
(c) Common features: there are two areas that
must be the subject of attention in all insurance claims. These are: (i) Liability:
is the insurer liable under the policy? When dealing with liability insurance,
it must also be ascertained whether the insured is liable at law to the third
party claimant. (ii) Quantum: how much is payable with the claim? With
life insurances, it is usually pre-determined, but with other classes of
business, this could involve complex and sometimes bitter discussion. (d) Significance:
it has been said that an insurer stands or falls on the way it deals with its
claims. There is truth in the remark and the insurance intermediary will want
to know and feel confidence in the support he looks for in this area.
REINSURANCE
This is not an area where the insurance intermediary is
likely to have a close association, but he should be aware that reinsurance is
very important to the insurer. The aftermath of the September 11 terrorist
attack is a testimony to this saying.
(a) Definition: insurance used to transfer all or
part of the risk assumed by an insurer under one or more insurance contracts to
another insurer, who may be referred to as a reinsurer in relation to such a
transaction.
(b) Reasons: The major reason for buying
reinsurance is security. It is very likely that an individual insurance claim
is payable from the assets of the insurer, but it may be very inconvenient (and
even costly) to produce large amounts of cash at short notice, since assets
will mostly be in investments. A reinsurance contract may be so arranged as to
entitle the reinsured to an immediate claim payment by the reinsurer in the
event of a valid direct claim (i.e. a claim from the original insured) exceeding
a pre-determined figure, even before the reinsured has actually paid the direct
claim.
Another important reason for reinsurance is to increase
an insurer’s ‘underwriting capacity’, which means the ability to accept proposed
business with in mind all risk management considerations. Having reinsurance
means that some risks may be accepted which might otherwise have to be declined
in part or total.
(c) Methods: This does not concern insurance
intermediaries, unless they handle reinsurance matters on behalf of insurers or
reinsurers.
(d) Effects for the Insured: Reinsurance has no
direct effect for the policyholder. He is not entitled to know, and probably
has no need to know, that his insurance is being reinsured. That is a matter
entirely between the insurer and the reinsurer(s). The insurer is always
directly liable to the policyholder for the full amount payable under the
contract irrespective of the financial condition of its reinsurers. Reinsurance,
however, does give an added security that the insurer will be able to pay!
ACTUARIAL SUPPORT
An actuary may be thought of as a highly skilled
mathematician. His particular expertise is not only in the collation and
presentation of numerical information, but also in projecting and predicting
future trends, based on available data and assumptions. It will immediately be
understood, therefore, that such an expert has a very important role to play in
insurance. Some specific observations:
(a) Life insurance: more than any other class of
business, life insurance depends upon mathematical calculations (although they
are very important to all classes). It is essential for the life insurer to
know mathematical facts about mortality (death statistics) and projected
interest earnings, for example.
Note: 1 The Insurance
Companies Ordinance requires all insurers who carry on long term business to
appoint a qualified actuary, acceptable to the Insurance Authority. 2 This
Ordinance also requires long term insurers to carry out a valuation of
all assets and liabilities at least once a year. This is perhaps the most
important function of the actuary.
(b) General insurance: Their expertise,
especially with long-tail business (insurance where claims arise and
develop over a long period of time until, say, 5 years or even more after
policy expiry, e.g. liability classes), is extremely valuable. This is particularly
true when having to calculate outstanding claims reserves required. The
Office of the Commissioner of Insurance requires motor and employees’ compensation
insurers to annually conduct actuarial review of their reserves relating to
such statutory classes of business.
Note: A corresponding
term, ‘short-tail business’, refers to business where claims are
mostly settled within a relatively short space of time after arising, e.g.
motor (own-damage) and fire insurance.
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