Ten factors in claims handling for global programmes

Claims handling under a multinational programme needs particular attention, and there are a number of issues that need to be considered and addressed. These include:

1. Claims handling – central v local

One important area is the extent to which claims are handled locally or centrally. The issue is not so much about how the handling is apportioned, but to ensure that everyone involved in the programme knows what the correct procedures are in the event of a loss. It is therefore important to have an agreement as to which claims will be handled locally and which will be handled centrally. At the same time, procedures for claims control, including approval levels, need to be established.

Everyone involved in the programme needs to be aware of their different responsibilities with regards to claims handling, and these responsibilities should be established at the beginning of the programme.

2 Self-insured losses

At the lowest level, the self-insured level, companies should establish reporting procedures so that the smaller claims that are not subject to outside insurance are noted and brought into the overall claims analysis. Approval levels need to be set so that local managers have a degree of autonomy and the authority to pay small claims that fall within the local retention level.

3. Claims payments

The actual payment of claims is another area that needs to be agreed and established at the start of a programme. Local policies will clearly mean that payments are made locally, but for excess covers, or where the policies are issued locally but are part of a controlled master programme, a degree of flexibility should be built into the programme.

This will allow the claims payment to be made in the most beneficial way to the group as a whole. This may be affected by a number of different factors, including taxation issues, corporate policy, and currency issues.

4. Non-admitted claims

A claim made under a non-admitted policy may be taxable in certain territories, being deemed to be not an insurance claim, but unearned income. In such an instance, it may make sense to have the claim paid to the parent company.

Corporate policy can also dictate the way in which claims are paid. The parent company may decide not to pay a claim to the relevant subsidiary, but use the money in some other way that is deemed to be more beneficial to the group as a whole. This may be true of a local operation that is being wound down or restructured.

Exchange rates can also influence the way in which the buyer wishes to have the claim paid. Depending on exchange rate fluctuations, it may not make sense for the claim to be paid to the subsidiary, because of a weak currency or high inflation in that territory.

5. Collection of claims information

A programme should ensure that claims information is delivered quickly and efficiently to where it is needed, both centrally and to the local subsidiaries. It also needs to be delivered in a format and structure that can be used effectively. The speed of collection of claims information, and in the correct format, is vital for claims analysis and the ability to pick up on problem areas in time to reduce the impact and minimise the exposure. The sooner problems are identified, the sooner they can be corrected or at least reduced.

6. Claims reporting

The reporting of local losses to the global insurer, the broker and the risk manager is another important area, allowing claims to be analysed and assessed. All claims, including those that are part of the self-insured element of the programme, should be reported.
Once analysed, claims information should be made available to local managers and employees, as a way of informing and encouraging better risk management awareness, and providing levels or ratios that can be improved upon and targets that can be aimed for.

7. Claims analysis – loss prevention

Claims information is useful to the buyer, not simply in gaining a premium reduction through a better claims history, but because it is vital to loss prevention. Analysis of claims statistics can help to pinpoint problem areas, and areas where loss control needs more attention. This is, of course, even more important for small, frequent losses that will generally not be insured and fall within the retention level.

Claims information can also be a useful guide as to the success or otherwise of loss-control measures, whether this be in terms of gaining premium reductions from insurers, or in terms of persuading the board of the value of such measures and their cost-effectiveness.

8. Claims analysis

Another area in which claims information can be used by the buyer is to help identify areas of business that perhaps the company should not continue to be involved in, because of the level of claims, and the unprofitability of the business. There is also the question of interdependency and how a loss in one territory may affect another, either directly or indirectly. Claims analysis across the group can identify such losses and then help to reduce the impact of such losses, through loss control and contingency planning.

9. Use of loss adjuster

The issue of whether claims are handled centrally or locally, and to what extent, also applies to the use of loss adjusters. Losses covered under local primary policies will be handled by the local insurer and any loss adjuster appointed by that insurer. The handling of losses not covered under local primary policies will fall to the centrally appointed loss-adjusting firm.
Once again, it is important that the role of both the local loss adjuster and the centrally appointed adjuster should be established from the start.

10. Different legal systems

An important area to consider is which legal system will apply in the event of a claim being made. There are many different systems, including Common Law, the Napoleonic Code, Germanic Law and Islamic Law. The system used when deciding liability and damages, for example, may make a considerable difference and will need to be taken into account.

For an in-depth look at the current key global programmes issues, Commercial Risk is holding its Global Programmes – Consistency and Certainty one-day conference in London on 12 June 2019. For more information or to book your space click here.

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