global insurance management

Claims Handling for SMEs


Jun 03 2015

Claims Handling for SMEs

Relevance:                   All firms that have claim handling authority.

Action required:           Check your systems and controls handle claims promptly and fairly.

We indicated to firms last year that the FCA makes use of something called a “Thematic Review”, where they “assess a current or emerging risk relating to an issue or product across a number of firms within a sector or market.  It allows investigation into key risks, and its focus on a specific risk allows for further detailed work in the particular area of concern.”

Last year there were 21 Thematic Reviews (TR); there have been 6 so far this year.  Not all are relevant to all firms.

The most recent TR does relate to general insurance and is:

  • TR15/6 - Handling of insurance claims for Small and Medium-sized Enterprises (SMEs)

This review is a follow-up to a previous review completed in 2014 that looked at the management of claims for household and travel insurance and found “reasonably high levels of claimant satisfaction and a drive by firms to ensure that claimants’ expectations were met and consumers were treated fairly during the claims process.”

The FCA then wanted “to understand if this claims philosophy was evident in the commercial segment of the general insurance market.”

We have said repeatedly that TCF (Treating Customers Fairly) remains a crucial aspect for authorised firms and claims handling is yet another example that the FCA can use to measure how firms perform.  They have stated in this TR paper:

“How firms treat their customers is central to our expectations of their conduct. We expect customers to be at the heart of how firms run their businesses and in the case of this review how they handle claims. The prompt and fair settlement of a claim may be of particular importance to SMEs as it could be critical to their business in the event of a major disruption.”

TR15/6 can be accessed with the following link: http://www.fca.org.uk/your-fca/documents/thematic-reviews/tr15-06

The review consisted of the following:

  • firms selected according to certain criteria including business model and size;
  • 5 insurers, 10 insurance intermediaries (including 5 MGAs) and 10 loss assessors;
  • limited to “first party non-motor claims, such as arising from fire, flood escape of water, theft and business interruption;
  • not include employers liability, public liability or professional indemnity claims;
  • claims in excess of £5,000.

So, what did the review uncover?

  • that there was a gap between the claims service received and SMEs’ expectations;
    • there was an overall poor perception by SMEs of the claims experience and some SMEs stating that they had not been treated fairly;
    • this was in contrast to what was found in the retail claims review.
  • evidence that claims were not always being managed effectively in the interests of SME customers;
    • the most common cause of dissatisfaction was a lack of clarity over who was responsible for driving the claims outcome;
    • this was often exacerbated by poor channels of communication between the different parties handling the claim;
    • in a significant number of cases poor communication with the claimant about progress often led to delays in reaching a settlement.
  • a significant number of instances where the sums insured were inadequate to cover the loss incurred;
    • the underlying reason for this was not always apparent but the review did highlight the material impact this could have on the claim.
  • no evidence of firms seeking to unduly delay the admission of liability.

Much of this will probably come as little surprise to most firms.

The review document contains a lot of examples, case studies and highlights that are thought-provoking and worth reading; they come under the headings of:

  • How claims by SMEs are handled;
  • Handling the initial stages of a claim;
  • Determination of liability under the policy;
  • Ongoing management of the claim;
  • Interim payments;
  • Settlement of the claim;
  • Payment of claims;
  • What is important to SME claimants;
  • The importance of adequate sums insured;
  • Quality assurance and assessing claimant outcomes;

The review paper also contains reference to the various rules that firms involved in claims handling should be aware of and be abiding by.  However, as indicated above the review was more “to understand the claims philosophy in the commercial segment of the general insurance market.” 

This should be seen as a precursor to the outcome of further work that the FCA intends to undertake involving firms and individuals within the industry to determine what changes may be required to improve outcomes for SME customers.

There are some other items referred to in the review paper that could affect firms sometime in the future: 

  • The Insurance Act 2015 that has received Royal Assent and will come into force in August 2016;
    • Changes to laws that might cause unfair outcomes for those insured if relied upon by insurers;
  • The Insurance Mediation Directive II, currently under negotiation, could include measures of product oversight and governance;
    • Strengthening requirements on insurers and intermediaries that manufacture insurance products.
  • BIBA’s technical guide;
    • Guidance to ensure customers do not have inadequate sums insured.

Therefore, we suggest that firms take a look at their own experiences and address any limitations in their own systems and controls.  We can assist with this sort of review, where necessary supplying an independent approach.

Last word on this subject goes to the FCA:

“We expect customers to be at the heart of how firms run their businesses and in the context of this review how they handle claims. Claims should be handled promptly and fairly for all customers and systems and controls should be in place to ensure that this occurs and that customers are treated fairly. In this review we found that there was a gap between the claims service they received and SMEs expectations.”

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