Insurers must show that they are willing to pay claims when they are needed most

A shrinking economy is forcing companies to examine the value of their insurance programmes. In a tough environment, delays in the payment of a claim could force a company into administration. Risk managers are therefore looking for swift settlement.

There are several reasons why claims may not be resolved as quickly as buyers would like, particularly during the recession. First, the rising number of suspicious claims means insurers are taking a closer look at major losses to check for signs of fraud. This takes time.

Second, understaffing in claims departments as some insurers cut their payrolls can cause delays. Finally, risk managers worried about the solvency of their insurance partners are increasing the number of carriers on their programmes, which makes claims settlement more complicated and time consuming.

For these reasons resolving claims quickly and efficiently has become a priority for risk managers. The Association of Insurance and Risk Managers (Airmic) has spearheaded a strategy to improve handling and the speed of payment with a detailed analysis of the strengths and weaknesses of insurers’ claims handling.

The strategy is three-pronged. An agreement was reached last year with several insurers on a 90-day cooling-off period during which they would refrain from issuing a reservation of rights letter, a device that puts the policyholder on notice that the insurer may not accept liability for a particular claim. It has become a knee-jerk response whenever insurers are notified of a large loss.

With the agreement in place, risk managers hope to be able to iron out problems without involving lawyers, something that often follows a reservation of rights.

In January, Airmic also published a guide highlighting the hallmarks of good claims service. This is set to be reviewed and updated annually.

Finally, the association wants to agree a strategy with insurers to speed claims payments. This last stage will be the hardest to achieve as the varying complexity of claims makes it difficult to agree a standard time frame for payment.

Brokers have also ridden to the defence of buyers and have begun to demand that insurers give a reason why they are issuing a reservation of rights. Aon also devised a “willingness to pay” model which ranks insurers into three groups: best performer, middle-rankers and below average.

So far Airmic has reached agreement over the reservation of rights issue with its seven partner insurers – Ace, Allianz, AXA, AIG, RSA, XL and Zurich. Other insurers should become involved and demonstrate that their claims service also meets best practice.

As the recession deepens, insurers have the opportunity to distinguish themselves by showing better claims handling and empathy with their clients. In fact, since the onset of the credit crunch, some have shown more willingness to make interim payments to clients during the early stages of a claim.

If insurers want to continue to present risk transfer as a viable risk management option they must show that they are willing to pay claims when they are needed most.

Key points

  • Risk managers want their claims to be resolved quickly, particularly as cash is hard to come by.
  • But during a recession insurers are compelled to investigate large claims for fraud, which can lead to delays.
  • Nevertheless, seven of the biggest insurers have agreed with AIRMIC to resolve large claims within 90 days.
  • More insurers should get on board with the initiative if they want to present risk transfer as a viable risk management option.