Claims handling

Lloyd’s seeks to strengthen its reputation for the fast and fair handling of claims by providing excellent customer service in responding promptly and professionally to all claims made against any Lloyd’s policy, worldwide. This chapter outlines the claims handling process relevant to the coverholder distribution channel.

• What role does a coverholder have with claims handling?

  A coverholder may be given claims handling authority. This will be agreed in the binding authority agreement; typically this agreement will prescribe the circumstances when a claim has to be referred back to the managing agent.

• What are the requirements for a coverholder to obtain claims handling authority?

  The coverholder has to confirm (via the application process):

  • Whether they are applying for claims handling authority on behalf of a managing agent.
  • Which entity will be handling claims and details of any potential TPA that may be used.
  • They will have a clear segregation of  duties between those who are underwriting and those who are claims handling.
  • That there is an internal audit and peer review process for claims handling to prevent conflicts of interest.

    Examples of potential conflict:

    - When the coverholder acts as a broker and an agent
    
    - Where an individual underwrites risks and agrees claims
    
    - Where one individual has the authority to both settle claims and issue payments
  • There is also an expectation that coverholders will know, based on local conduct of business requirements, what is required from under local regulations and imposed on Insurers when handling claims.

  In summary the coverholder needs to have the skills, resources and processes to service a claims function to the Lloyd’s required standards. This function will include customer service, assessment of likely exposure to each claim, and the ability to manage information in relation to all claims notified throughout the life cycle of the claims.
  

   

• What are the different levels of claims handling authority?

  The managing agent will work with the coverholder and set a level of authority that they think is appropriate to allow the coverholder to handle claims, dependent on the level of expertise and resources available at the coverholder:

  • Full authority - the coverholder has unlimited claim handling authority.
  • Part authority – the coverholder has a claim handling authority up to a defined limit (or restrictions within such) and then refers all notified claims that have a potential value above this limit to the TPA or managing agent to handle.
  • No authority – all claims are sent to the TPA or managing agent to handle.
    

• What other parties could be involved when setting up the claims settling authority?

  At the point of setting the binding authority agreement up, there will be a number of other parties that will be linked to the claims process:

  Third Party Administrator (TPA)
  
  What is a TPA?
  A company that specialises in handling insurance claims.

  What do they do?
  TPAs are contracted by the managing agent to handle claims on behalf of managing agents and coverholders, often at the request or on the recommendation of the coverholder.

  If there is a TPA, how does that fit into the binding authority agreement?
  - This will depend on the level of claims handling authority given to the coverholder and agreed in the binding authority agreement in the claims handling procedure.
  - The role of the TPA should be specified in the binding authority.

  Why use a TPA?
  - The coverholder may not have the skills, resources or appetite to provide a claim handling service, particularly if there is likely to be a high volume of claims.
  - There should be a contract between the managing agent and the TPA.

  What is there available for TPAs?
  For TPAs there is a model contract available or a standard agreement utilised by the managing agent will be provided. It is important that the roles of the coverholder, TPA and managing agent in the claims process are all clearly set out so that they are able to work effectively together.    
  
  Loss adjuster
  What is a loss adjuster?
  A person who is appointed to investigate the circumstances of a claim under an insurance policy and advise on the amount that is payable to the policyholder (claimant) in order to settle that claim.
   
  How do they fit in?
  When a claim needs further investigation and an assessment of the loss confirmed then loss adjusters are used to inspect, work out cause of loss and provide estimated loss figures. 
   
  How do they tend to be used?
  This will depend on who has claims handling authority and also on the terms of the binding authority agreement or TPA agreement, which will specify whether the coverholder or TPA has authority to appoint loss adjusters on behalf of the managing agent.

  Is there a list of Lloyd’s approved loss adjusters?
  No, Lloyd’s would expect the loss adjusters appointed by a coverholder or TPA to be appointed by the coverholder or TPA’s own panel of loss adjusters.
  
  The terms on which loss adjusters and any other service providers are appointed should be documented in the binding authority and should include service levels to achieve the Lloyd’s objective that claims are responded to promptly, efficiently and fairly and valid claims are paid without delay.
  

• Who appoints these other parties?

  The managing agent is directly responsible for claims handling and ultimately it is their decision as to who is involved in the claims handling process and what their role will be.
  It is important that, if the coverholder will not have claims handling authority, a TPA is appointed, and a TPA agreement is in place before inception of the binding authority agreement to prevent any delays in handling future claims.

• How does the claims process work?

   

  The insured notifies the retail broker of the claim.
  
  The retail broker submits the claim to the coverholder or the TPA if nominated for receipt of notification.
  
  Where the claim is within its claim settling authority, the coverholder will (subject to validation) investigate, authorise and pay claim to the policyholder, and submit details of the claim to the managing agent through their Lloyd’s broker or the TPA if nominated as such.
  
  If the claim is outside the coverholder’s agreed authorisation limit then they will submit the claim to the managing agent via their Lloyd’s broker, TPA or loss adjuster, as outlined in the claims agreement established at commencement of the contract.
  
  The managing agent will communicate to the coverholder their instructions for dealing with the claim, for example to investigate further or to pay. If the managing agent authorises payment to the Lloyd’s broker, payment, will be made via Xchanging Claims Services (XCS) and the Lloyd’s central settlement system.
  
  The coverholder or TPA submits the details of the claim to the Lloyd’s broker (either at the end of a specified period, for example, monthly, on a report or bordereaux or as and when the claim is notified).
  
  Expert advisers (loss adjusters or lawyers) may be used to advise on the claim throughout the process.
  
  The binding authority agreement will contain the identity of who is handling the claims, and the limit of the coverholder’s claims handling authority, if any. If the coverholder does have claims handling authority the binding authority will also contain the frequency of claim reporting required by the managing agent.
  
  

• When does a claim need to be referred back to the managing agent?

   Managing agents set a limit on any authority delegated to coverholders that have claims handling authority. This limit will be based partly on the value of the claim and partly on its complexity. For example a managing agent is likely to want to deal with any claim that is the subject of a complaint or litigation.

  In some jurisdictions there are very strict regulatory timeframes imposed for responding to and handling claims. A coverholder with claims handling authority is expected to be familiar with all such local regulatory requirements and it is important these requirements are met and appropriate service levels are in place with any third parties that will impact on the ability of the coverholder to meet the requirements.

   

• What are the implications of not doing this?

  The risk of failing to meet regulatory requirements includes damage to the reputation of Lloyd’s, loss of Lloyd’s trading license, involvement in protracted and costly court proceedings, and exposure to substantial fines or claims for extra contractual damages.

• What is the process if a claim is declined?

  A coverholder very rarely has authority to decline a claim without referring the matter back to the managing agent.

• What should a coverholder do if a policyholder is not happy with the way their claim is being handled?

  It is usually a provision in binding authority agreements that any complaints should be referred as soon as possible to the managing agent (via the Lloyd’s broker). There is a formal Lloyd’s complaints procedure which the policyholder is likely to be asked to use.
  

• What is the process for a coverholder to refer claims and issues back to the managing agent?

  Claims are referred back to the managing agent normally via the Lloyd’s broker.

• Which parties are responsible for payment of large claims?

  

• How does the money move and where does it go?

  1.The coverholder or appointed claim specialist checks if the claim is valid.
  
  2. The coverholder then identifies if the claim is  within their authority to pay or whether it needs to be referred onto the managing agent via the Lloyd’s broker.
  
  3. If the claim is within its authority and valid, the coverholder pays the claim to the policyholder and then it would go through the reporting process back through the Lloyd’s broker to the managing agent to report that claim was paid.
  
  4. The coverholder would then use that report to collect the claim from the managing agents as reimbursement.
  
  5. If the claim is not within his authority , then the coverholder will pass on the documentation for the claim to the Lloyd’s broker who will get agreement from the managing agent.
  
  6. Once the claim has been agreed by the managing agent, the coverholder will be advised that the claim can be paid. The coverholder would pay the claim and then use the bordereau (reporting) process (1) to claim from the managing agents as reimbursement.
  
  7. The coverholder will deliver a premium bordereau (report) and a paid claims bordereau (report) and ask for funds. In some cases they will net the balances to either remit funds to the managing agent (via the Lloyd’s broker) or ask for funds.

  More about reporting and reporting standards
   

• How long does it take once the coverholder has passed the claim into London?

  Once notified to the managing agent and dependent on the circumstances, the claim should be resolved promptly.

• How does the money get paid to the coverholder?

  Payment is through the claims reporting process via the Lloyd’s broker (see Lloyd’s coverholder reporting standards).

   

• If there is a problem where do I need to go?

  The coverholder’s first point of contact should be with the Lloyd’s broker who will assist with resolving issues and queries and will speak to the managing agents on their behalf if there is a claims query.

• As a coverholder how quick can I expect to be advised if a claim is not covered?

  Managing agents have a set of principles and standards for claims management, one of which states that they will provide an appropriate level of service to brokers or policyholders in the circumstances of the claim, including communication of actions and progress where appropriate.

• If I am the coverholder and I want to find out where the claim is what do I do?

  The coverholder should ask the Lloyd’s broker.

• Claims funds

  What are they?
  There are occasions when a coverholder may need to have a claims fund for example, if a coverholder was operating in a territory where there were a large number of claims because of a catastrophe. The managing agent may provide the coverholder with a pool of money from which they can fund the claims.

  Why do we have them?
  It enables the coverholder to settle within authority and low value claims quicker and faster and reduce the impact of the catastrophe on policyholders.
  
  What arrangements must a coverholder have in place for a claims fund?
  The claims fund is managing agents’ money therefore it has to be accounted for properly. The coverholder or TPA where held by them, must arrange for the money to be held in a separate segregated trust account. The coverholder should also ask the relevant bank to acknowledge the status of the account. There should be regular statements provided to the managing agent of the balance in the claims fund. The frequency should be specified in the binding authority.

• What are the coverholder reporting standards?

  Lloyd’s has introduced standards for coverholders to report claims. To make this flow of information consistent Lloyd's have introduced standards for coverholders to report claims handling. These standards are mandatory for new coverholders and strongly recommended for existing coverholders.

  What are the benefits of having reporting standards for claims handling?

  • A clear statement of the information coverholders need to provide for the whole of the Lloyd’s market.
  • A consistent list of requirements around which processes and systems can be designed.
  • Standard information flows into the Lloyd’s market so long as the required information can be produced.
  • Freedom to use your own systems and technologies.

  Detailed explanation of the claims standard and reporting can be found at Lloyd’s coverholder reporting standards.