insurance

Claim Management

The environment in which insurance companies operate is competitive and complex(Bart 2012). This complexity creates the need for stringent measures and strategic management of the insurance claims. Following this need, there are several important strategies that companies and insurance managers use to manage claims in the industry. This paper will review the strategies and also increase the awareness on the alternative strategy for a company seeking to penetrate into a new country’s insurance market. .

The Claim Philosophy

Before a claim is managed, a claim philosophy must be established and executed. This philosophy helps to define the standards of the claim and the expected conduct of the personnel involved. Secondly, the philosophy also gives certainty to the consumers of insurance services and make them aware of the approach to be taken regarding their claims. For the purpose of claim management, managers can make an analysis of the already available procedures and against the philosophy hence identify the disparities and the way forward to the improved performance(Xie et al. 2015).

While seeking to expand into new markets, cultural impacts on the claim philosophy and the changes expected must be considered. The potential changes including territorial differences, staffing issues and the general structure of performance must be put into consideration.

The Reserving Strategy

A claim that has not been settled at any given time must be reserved. This reserve represents exposure presented for indemnity and should be provided for, for effective management of claims(Kallo 1990).

The management role in this case is to ensure that a consistent reserve strategy with the potential to create large movements in reserves is advocated for and followed. The impact of the reserve strategy and the claim philosophy will also need to be analyzed.

Claim Leakage Prevention

The difference between the actual claim payment and the amount that ought to have been paid should all the industry practice be applied is referred to as claim leakage. This difference may be ‘hard’ or ‘soft’ leakage(Kallo 1990).

‘Hard’ claim leakage is the objective leakage that arises from a failure to apply certain clauses in the policy. The reviewing of leakages easily shows the existence of such errors. The internal control processes should be in a position to point out these errors(Von Lanzenauer & Wright 1977).

‘Soft’ claim leakages, on the other hand, are more objective and difficult to point out. An example of such a leakage occurs where a party’s cost has not been negotiated to an acceptable level. This kind of disparities is harder to identify and control. With limited experience in claim management, the company may not be in a position to assure control of the ‘soft claim leakages.’ This means that it is difficult to negotiate costs to an acceptable level. In addition, the planned penetration to newer markets, settling more ex-gratia claims may be inevitable under normal conditions.

Review of Claim History

A wide range of companies has been insured by SIC over the last decade across Europe. In addition, the company has been helping the claim underwriters to determine factors that cause claim costs and the trends that these factors take from the claim data available(Metzner et al. 2011).

The company currently has no existing claim data of its own. This is an important factor to consider while reviewing the expansion proposal. A deeper liaising with the actuary department is necessary to predict the market forces expected. In this regard, therefore, it is an expectation that the recommendations made by the department on maintenance of solvency in the prospective market and the compliance requirements in the target market will assist in easier penetration and also assist in planning for future strategies.

Staff Management

Expansion into a new market will also demand a restructuring of the human resources department(Vidogah & Ndekugri 1997). The increased future workloads expected with the adoption of the underwriter’s expansion proposal will require a more strategic internal staff management. More people will be required to analyze the new market, existing claim data, and the handling arrangements. Further, more people will be required to review proposals and policy wordings in the new market. It is also expected that the new ventures will cause cost implications on human resources, which will be explored in the cost-benefit analysis later.

Claims Outsourcing

The claim handling jobs will also be outsourced to the third party. The high-volume claims with low complexity will be the candidates for third-party outsourcing. This is because they are rather straight-forwards and low value but are labor-intensive such as the medical and motor claims. However, the main claims including directors and Officers (D&O) and Professional and Indemnity (P&I) will not be outsourced since they are the major focus of the company. This is also because the workload is not easily ceded to the third party. The recommendations from the actuary department will help in making this decision.

Matters with Loss Adjusters

The existing relationship with the loss adjusters, one which has been built over a decade has helped the company understand losses, their causes and how to avoid them. In the new markets, there will be the need of new loss adjusters in that market. For efficiency, an investigation will be conducted on this issue especially on reinsurers to determine the feasibility of retaining the current adjusters in the new market. The resultant cost implication will also be analyzed.

Alternative Team Structures

The company is currently getting accustomed to a new structure where the major departments, the actuarial, claims, underwriting, and marketing departments are separate. This segregation has improved the efficient of the company.

In the target country, the company is considering adopting a similarly segregated structure with each of the departments functioning independently but collectively for the general objective. This is likely to improve efficiency and promote effective internal communication. For the purpose of the expansion, consideration of the local language and structuring of the various divisions will be based on the specifications of the territory.

Cost-Benefit Analysis

Costs

During the expansion, the expected costs include that of increased workload, budgeting and also of the increased need for claim handlers. Other external costs include the cost of the outsourcer, and the suppliers are also expected.

Due to differences in jurisdiction, a cost is also expected. Understanding the governing policies in the new territory will be a responsibility of claim handlers. Their report will assist in making a good decision. It is possible that the policies governing the company’s major claims are under a different law and hence changes are likely to be necessary.

Outsourcing

Through the third-party outsourcing, it is possible for the company to reduce the cost of expanding the human resource department. When the claim handling work is outsourced, the company will be left with the two major claim divisions. However, due to the complexity of the environment and the potential of written risks, the outsourcing cost is also expected to be high.

Relationship with the Loss Adjustors

With the expected expansion and penetration into the new market, it is expected that some loss adjusters will be changed(Kallo 1990). Those that understand the new environment will be consulted for the purpose of the new market. Whether the new relationships will be materialized in advance or after the penetration, cost implication is expected. The cost may include negotiation cost and retention fees for a longer relationship that is required.

The Cost of Reinsurance

Another issue to consider while analyzing the cos is the potential change of reinsurances. Due to the change in the territory and the applicable rules and policies. Due to the changes, the new reinsurer may have lower commissions to the company, higher premiums, and even more labor-intensive procedures. This means that a higher cost of re-insurance is expected.

The Benefits

New Market as a Learning Curve

The new market entry and the new strategies will be a great lesson to the company. It is expected that the move will build the expertise of the company in the expansion.

In addition, it will be beneficial to the company as the staff with better experience of the new market are brought on board. This will help the company start on a good move. This will mean that the company will have a new and more experienced team and with the potential of achieving better in the new market.

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