Buyers struggling with multi-layered claims settlements

At a meeting organised by IGREA, one of Spain's risk management associations, experts said they are worried about uncertainties created by such arrangements, even in cases where lawyers deem contracts to be watertight. They also expressed dissatisfaction about the autonomy and role played by loss adjusters in large and complex claims. These issues were raised this week during the annual IGREA meeting in Madrid on insurance market trends. IGREA represents many large Spanish companies with multinational operations.hideRisk transfer for companies with complicated and large risks increasingly require complex insurance solutions placed with a consortium of underwriters. Programmes are made up of different coverage layers that are triggered according to the losses suffered. Each of these layers is often led by a different insurer, which can generate disputes among underwriters when it comes to establishing how much each individual participant on the programme must pay to the insured. According to experts at the IGREA event such arrangements do not translate smoothly into civil law markets like Spain. They also pointed out that in the Lloyd's market some companies are specialised in leading consortia, while others focus on following. In Spain, most corporate insurers are designed to lead complex programmes. This makes them less willing to delegate the power of decision to other insurers. The main problems arise at the time of settling payments, according to insurance law expert Paulino Fajardo. "One thing is the management of the claim, when rules can be agreed, you can have a steering committee and all participants can follow the leader," he said. "But at the time of making payments, each company is independent to make its own decisions." As a result, not even well crafted contracts can bring complete peace of mind to insurance buyers. "It looks great to me that there is a unified management of claims and that everybody follows the leader. But what if someone decides not to pay?" said Augusto Pérez Arbizu, Director of Insurable Risks and Product Development at Telefónica. "A contract may look airtight from a legal point of view, but, as an insurance buyer, I am always shivering." Many of the problems could be avoided if contracts paid closer attention to the possibility of a claim, the experts said. "Negotiations between buyers, brokers and insurers are usually focused on the placing of the risk," noted Juan Manuel Negro, Deputy CEO of Allianz in Spain. "They rarely talk of what will happen if a loss takes place." However, Mr Pérez said it is not realistic for companies buying multi-layered programmes with many different insurers to carry out pre-claims planning with all involved. Ideally such problems could be mitigated by sharing information between all parties involved in the buying and claims process, the experts said. "Transparency from all parties involved is of essence," Mr Negro remarked. "Buyers, brokers, insurers and loss adjusters must be transparent about the flow of information and about expectations." Risk managers also said that they often worry about the level of autonomy of loss adjusters that are called into the process to make vital decisions. Some expressed doubts about the independence of loss adjusters when they are hired, coordinated and paid for by insurers, which is often the case in the Spanish market. Participants floated the idea that the costs of loss adjusters in complex settlements should be split between buyers and carriers in order to guarantee their independence.

Buyers struggling with multi-layered claims settlements

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