AMM 101 CLAIMS MANAGEMENT

Assignment 3
Short Question
1. In developing a Claims Management System there are fundamental factors that falls for
consideration. Identify and briefly explain such factors. (10 marks)
The effective control and planning of an organization are dependent upon information. The key
difference between 'data' and 'information' is:

Data is the 'raw material' which is processed and turned into information. In other words,
data is collected but unprocessed information.
Information is data, processed in such a way as to be of some meaning to its recipient.

Managers use information to make informed decisions (based upon their experience and existing
knowledge).
The design of a claims management system must permit the recording of information relevant to the
claims management strategy that has been developed in accordance with the insurer's overall
business objectives. It cannot be emphasised too strongly that the most important aspect of
designing a claims management system (and any information system) is a prior analysis of the
insurer's business to identify its particular needs.'
The IT system should be clearly seen in its context. It is merely one element of a much bigger network
that encompasses the whole of the claims management process, including:

corporate claims philosophy;

management of the claims operation; and
quality management.

2. What are the two key issues surrounding the application of IT in claims management.(10 marks)
It is important to stress two key issues in respect of the application of IT to claims handling:
The application of IT must be accompanied by a review of claims procedures and practices.
It is no good simply making old procedures and practices electronic if they are inappropriate
to the new environment. Entirely new methods of operation should be considered where
appropriate, and full training given to users.
A powerful, flexible and adaptable computer system is a very valuable tool in the hands of
experienced users who can operate it properly and correctly interpret the available
information; but it is not a substitute for experienced people.

3. Identify the Benefits of IT in Claims Handling (10 marks)

The main aims of the use of IT in claims handling are the following:
to reduce the cost of claims administration; and

 to improve the service provided to the insured.

The main benefits, on a simplified basis, are as follows:
Single data entry - the first person with a computer in the insurance transaction chain (i.e.
broker or insurer) where there are many insurers on a risk, or the broker or insurer at the
proposal form stage where there is a single insurer, creates and enters the data. Thereafter
there is no re-entry. This eliminates duplication of effort and data, it involves fewer people
in the data entry process and should lead to fewer errors in data inputting (data
verification should take place on a random basis to ensure quality - such safeguards form
part of a quality management system).
Reduced use of paper-based claim files. The claim file will be created electronically
(within a multi-media environment). Supporting claim details such as images of damage
and reports from loss adjusters can also be added. Where there are many insurers on one
risk, this development permits speedier distribution of claim details to the insurers involved
and expedites the agreement process.
Electronic, and therefore faster, circulation of the proof of loss to the various insurers on the
risk, leading to quicker claims settlement.
Electronic authorisation of claim payment, with payments made through a central
settlement system used by all insurers on the risk. Authorisation of the claim payments will
automatically trigger cash movements. This speeds up the claims settlement process,
removes paper from the process, reduces re-keying of claim information at settlement
stage and reduces bank charges.
Use of original claim details in the outwards reinsurance recovery process and settlement.
This speeds up the notification of claims to reinsurers and ensures that presentation to
reinsurers is undertaken to market standards.
Electronic issuing of collection notes in the outwards reinsurance recovery process. Once
the original claim is paid, an electronic collection note is issued by the reinsured to the
reinsurer (or broker). This again increases the speed of recovery and settlement.
Use of electronic funds transfer. This leads to faster settlement of claims.

The two main aims of using IT in claims handling are achieved through:
Reduction in claims administration costs.
Improvement in service to the insured. This arises from the faster agreement of valid claims
and the faster settlement of such claims.

4.

Discuss the relationship between Quality Standards and Corporate Claims. (10 marks)

The quality assurance standard such as the ISO 9000 series is aimed at defining procedures and
precise standards of performance, the corporate claims philosophy (which sets down the
company's requirements on key claim issues, usually in a written format) attempts to define the
overall approach to claims in less specific terms.

As part of the process of gaining registration for ISO 9001 and the pre-planning involved in the coordination of all of the company's claims management procedures and strategies, consideration
should be given to developing or redesigning the corporate claims philosophy. Clearly, both the
company's quality policy and its corporate claims philosophy must work in tandem, with the
corporate claims philosophy reflecting the stated quality policy.
5.

Quality management has an impact on other areas of insurance or reinsurance companys

activities. Identify the areas with brief explanation. (10 marks)

Quality management also has an impact on other areas of an insurance or reinsurance company's
activities. Whilst the quality management system will require evidence of management responsibility,
the adoption of sufficient resources and the ongoing measurement, analysis and improvement of
systems, in practice it will affect the key activities as follows :

Use of information technology

Information technology is an essential part of the logging and monitoring system of any efficient
management or quality control system. In many cases, the use of information technology will be
increased with the adoption of quality standards, since it is an ideal way to provide a documented
audit trail of the procedures utilised to handle a particular claim.

Use of outsourcing

Depending upon the standard of service which the company feels it can attain internally compared
to the standard on offer by an external provider, it may decide that the outsourcing of part or all of
the claims service is the most efficient way to meet the quality assurance standard. It is important to
note that by outsourcing a function or functions, an insurer can not divest itself of associated quality
management issues. The insurer is still responsible for ensuring that quality management procedures
are in place and adhered to.
Other factors such as the experience of the service provider, the cost of the service and the flexibility
of the service offered may also be important.

Use of intermediaries

Once a company is ISO 9000 registered, it may decide to use only intermediaries with a similar
registration in the future. This may apply to both insurance and reinsurance brokers. Alternatively, the
company may state publicly that such intermediaries will be its 'preferred' business partners. By
insisting that its partners themselves conform to ISO 9000, it can cut out less scrupulous companies: to
have passed the initial assessment and continuing surveillance to achieve registration, even the
smallest organisation must be consistently producing the service to known or contractually agreed
standards.

Marketing

There is considerable status and marketing advantage to be had if a company has independent
quality assurance approval to ISO 9000. Although it may not be required by its business partners,
such a company will be seen to have a definite advantage over other companies offering a similar
service (or product). This is seen as a useful guide to how a company performs.

Customer retention

This means keeping existing customers. Another way to express this is 'to avoid losing customers'. The
reasons why a customer stays with a particular insurer, and indeed the reasons why some decide to
leave, are discussed in more~detail in a later section of this chapter. However, specifying the level of

service to be expected from a company and assessing and measuring its delivery will aid in the
handling of complaints, since claims handlers will have written down what was said or done. In
addition, the number and type of complaint can be more easily logged and recorded and a
specific response be formulated to deal with common problems. Such problems will then be dealt
with in the monitoring and review process adopted as part of ISO 9000 registration. By increasing the
number of customers who are satisfied with the service they have received, customer retention rates
should improve. Often, the only interaction a policyholder has with their insurer is when the premium
is being paid and when a claim is being reported. Quick, reliable and professional settlement of the
claim can breed customer loyalty - to the ultimate benefit of the insurer and its shareholders.
6. Define ISO Quality Management and procedures to be certified ? (10 marks)
The ISO 9000 series is a quality assurance standard. The ISO 9000 family of standards arose following
the successful application of quality assurance standards throughout the British Ministry of Defence
and its large procurement agencies during the 1970s. In order to ensure the quality of products
supplied, the MoD employed 16,500 inspectors who visited the suppliers at source to inspect raw
materials, castings, forgings etc.
In the early 1970s the Allied Quality Assurance Publications (AQAPs) were introduced. These
standards took the responsibility of achieving the required specification away from the inspectors
and put the onus on the suppliers to introduce effective quality assurance systems.
The private sector demanded the introduction of an equivalent standard fof its own use, which led
to the introduction of the Quality Assurance System Standard BS5750: 1979, amended in 1987 when
adopted by the International Organisation for Standardisation (ISO) as the ISO 9000 series. The
standards were also accepted by the European Committee for Standardisation as the EN29000
series and, although amended in 1994 and 2000, are now recognised throughout the world.
The quality assurance standard which applies to claims management is ISO 9001: 2000.
The basic concept behind the introduction of a quality assurance standard is to detect errors or
shortcomings in the quality of a service before that service is delivered to the customer. It attempts
to avoid customer complaints and promote customer satisfaction.
Procedure for becoming certified
In practical terms a company would not seek certification purely for its claims management
operation but for its service operations as a whole.
The procedure for becoming certified is set out below:

The company purchases a copy of the relevant quality assurance standard, which sets out
the formal requirements of the standard. These include the use of a quality policy statement
and a procedures manual by the company.
The quality assurance standard must then be interpreted to apply to the insurance industry
(including claims management operations).
The company must then clearly set out, in simple language, its own internal quality
specification designed to meet the expectations of its customers).
The company must introduce documented management systems and procedures, with inbuilt controls to monitor performance.
The company is assessed by a Registered Lead Assessor working for an accredited
certification body (i.e. accredited by UKAS representing the Department of Trade and
Industry). The assessor may recommend the company for registration.
Following the initial assessment, continuing surveillance is carried out on a regular basis.

Long Question
1. There are challenges and difficulties brought upon using IT in Claims Handling,
discuss. (20 marks).
Claims settlement is one of the most important aspect of an insurance company. Out of any
insurance contract, the customer has the following expectations:
i.
ii.
iii.

Adequate insurance coverage, which does not leave him high and dry in time of need,
with right pricing.
Timely delivery of defect free policy documents with relevant endorsements /
warranties / conditions / guidelines.
Should a claim happen, quick settlement to his satisfaction.

The claim settlement in general, thus have their own peculiarities and therefore need proper
handling.The following factors give rise to complexity in a claims handling context:
Whereas in personal insurance there is usually either a single insurer or single scheme
underwritten by a number of insurers, in commercial insurance many insurances involve a
number of different insurance companies and the bigger risks may require dozens of insurers.
The greater the number of insurers, the greater the complexity.
A large proportion of the UK's commercial insurance is handled by brokers who are usually
responsible for managing the flow, and often the production, of documentation.
Almost all of the UK's insurance companies need reinsurance to reduce their net
commitment to an acceptable level.
The claims process itself (essentially notification, agreement and settlement) requires
considerable interchange between the insured, the broker and insurer(s). It may also involve
loss adjusters, legal experts and expert witnesses.
The London market is different from the UK retail sector, in that many insurers can participate
on one risk. The traditional face-to-face method of claims broking, where brokers personally
advised insurers of tosses and obtained agreement to settle, meant that broking companies
needed to employ a large number of claims brokers in order to provide a decent service.
Visits by brokers, with a stack of claim files to hand, often led to long waits in claims offices.
Once the first underwriter on the contract had agreed to settle the claim, the rest of the
insurers were advised of the claim and requested to settle via a central processing body. In
1987 the first moves were made by the main London market associations to develop and
introduce electronic claims systems. With the introduction of electronic claims files in 2006 the
traditional methods of claims broking in London and Lloyd's have now been substantially
replaced.
It is possible that a certain number of claims will be fraudulent, repeated or exaggerated and
will therefore require detailed investigation.
It can be seen from the above that there is a requirement for an information system which is
capable of:

processing large amounts of data;

processing quickly;
processing accurately; and
delivering information in a meaningful manner.

This encapsulates the role of IT in claims handling.

2. Insurers survival as getting and keeping customers depend on few issues.

To maintain a competitive edge in an increasingly complex environment, insurers
must know what customers expect and provide services and/or products that meet
those expectations.
a)

Discuss the customers expectation from a customers point of view. (10 marks)

Few issues are as central to an insurer's survival as getting and keeping customers. To maintain a
competitive edge in an increasingly complex environment, insurers must know what customers
expect and provide services (and products) that meet or exceed those expectations.
Establishing customer expectations
Consumers are more demanding today than they ever have been in the past. They have higher
expectations of products and customer service. Commercial organisations, too, are more
sophisticated in how they buy insurance (reflected in the shift towards risk management and selfinsurance). The consumer is partly responding to changes in the marketplace and partly driving the
change.
Insurance buyers have a clear idea of what makes a good insurance company. They seek:

clear communication;
the ability to make coverage changes easily;
a simplified insurance purchasing process;
clear policy wordings; and
an elimination of errors.

Today's customers are knowledgeable and unwilling to accept poor service. Although customer
expectations have, increased, they remain within reasonable bounds. Insurance companies are
responding to this situation by going directly to customers to find out what they need and expect.
Customers' expectations are reinforced by ongoing, and higher profile, regulation.
Customer satisfaction
A survey by American Family Mutual Insurance Co. in 1992 was designed to show the extent to
which consumers were satisfied with their insurance companies and to identify the reasons why they
changed insurers. The participants identified 18 factors which affected their overall satisfaction with
their insurers. These included the following:

obtaining clear explanations of the required action in the event of a claim;

being sure that a fair settlement will occur in the event of a claim;
knowing that a fast claims service exists;
'trusting' the insurance representative;
the insurance representative's ability to return phone calls within one or two days; and
the insurance representative's ability to convey what options are available.

Policyholders expect these service criteria from their insurance companies just as much today as
they did then.

b)

Why a customer leaves an insurer and method in retaining a customer. (10 marks)

A policyholder who is dissatisfied is more likely to be attracted to a competitor's adverts. When the
price differentials appear to be minimal, policyholders may switch for service improvements such as
the quality of the claims service. Policyholders stay with their companies because:

they receive the service they expect; and

it is too much of a hassle to leave.

Insurers that refine their services in terms of customer expectations are the ones most likely to attain
and sustain competitive advantage.
However, specifying the level of service to be expected from a company and assessing and
measuring its delivery will aid in the handling of complaints, since claims handlers will have written
down what was said or done. In addition, the number and type of complaint can be more easily
logged and recorded and a specific response be formulated to deal with common problems. Such
problems will then be dealt with in the monitoring and review process adopted as part of ISO 9000
registration. By increasing the number of customers who are satisfied with the service they have
received, customer retention rates should improve. Often, the only interaction a policyholder has
with their insurer is when the premium is being paid and when a claim is being reported. Quick,
reliable and professional settlement of the claim can breed customer loyalty - to the ultimate benefit
of the insurer and its shareholders.