The Problem and Its Background - Prompt Processing of Claims Makes an Edge in Non-Life Insurance Business

PROMPT PROCESSING OF CLAIMS MAKES AN EDGE IN

NON-LIFE INSURANCE BUSINE

A PROJECT RESEARCH

Submitted to:

FACULTY OF MANAGEMENT STUDIES

MASTER OF BUSINESS ADMINISTRATION

CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

Facing risks is part of everyone's life. A whole range of risks could be enumerated to illustrate this statement. Examples of destructive scenarios that just cause some annoyance to the people involved, but which are also classified as 'risks' - to calamities like a fire, flood, an accident , that have a huge impact on one's economic and personal situation. Economic agents are risk averse in the sense that they are aware of risks with a huge economic impact and will look for ways to transfer these risks (partially or totally) to other players on the market. A whole sector of activities was born in light of this risk aversion: the non-life insurance business.

Claims occur at a certain point in time, consequently they are declared to the insurer (possibly after a period of delay) and one or several payments follow until the settlement of the claim. Depending on the nature of the business, the development of claims may take several calendar years due to, for instance, long legal procedures or several indemnities that have to be paid out during a recovery period. How earned premiums are linked with claims paid for the corresponding contract depends on the branch of the risk: the premium income of a certain accounting period is either linked to the claims paid out in the same period, either are payments connected with the moment of notification of the claim and the premiums earned during that period.

Fundamentally, estimates of claim liabilities are forecasts subject to estimation errors. The actuary responsible for making the forecast must select and apply one or more actuarial projection methods, interpret the results, and apply judgment. Performance testing of an actuarial projection method can provide empirical evidence as to the inherent level of estimation error associated with its forecasts. Often in non-life insurance, claim reserves are the largest position on the liability side of the balance sheet. Therefore, the estimation of adequate claim reserves for a portfolio consisting of several runoff subportfolios is relevant for every non-life insurance company.

STATEMENT OF THE PURPOSE

The study specifically aims to seek answers to the following question:

1. How do non life insurance company accelerate in the insurance claims process?

2. What are the keys areas of competitiveness in non life insurance business?

3. What is the most important area of competitiveness in the non life insurance insurance business?

4. How does company A compare with company B in terms of

A. Type of Claim

B. Turn-around-time

5. Is there a significant difference between Company A and Compant B in terms of

A. Type of Claim

B. Turn-around-time

SIGNIFICANCE OF THE STUDY

The study seek to compare turn around performance of two(2) sample Non Life Insurance Companies for increased industry competitiveness.

DEFINITION OF TERMS

Insurance- It is a contract where by one (insurer) undertakes for a consideration (premium) to idemnify (insured) against loss, damage or liability arising from an unknown or contigent event.

Loss- Unintentional decline or disappearance of something with economic value due to a contingency.

Gross Premiums- When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract

Premiums Earned- The amount of total premiums collected by an insurance company over a period that have been earned based on the ratio of the time passed on the policies to their effective life.

Risk- Uncertainty concerning the occurence of a loss

Claim- is a demand by the insured upon the insurer for the payment of the benefits covered by the policy in the event of the occurrence of any of the perils insured against.

Perils- Cause of the loss. Loss producing agent e.g. fire, typhoon,flood, earthquake, etc.

Hazards- Condition, which creates or increases the chance of loss from a given peril.

Deductible-The amount of which the insurer shall pay in excess of the specified amount or percentage of the loss or value of the property insured.

INSURANCE PRINCIPLES

1. Indemnity- bring back to the financial position prior to the loss

2. Utmost Good Faith- absence of fraud or deceit or full disclosure of material facts.

 Concealment-refers to the designed and intentional withholding of any fact material to the risk, which the assured in good faith ought to communicate to the underwriter

 Misrepresentation(False Statements)-deliberate misstatement of fact in form

 Breach Warranty-refers to the untruth or non-fulfillment of a statement or promise set forth in the policy, or by reference incorporated therein

3. Insurable Interest- Legal relationship of the insured with the subject matter of insurance

4. Proximate Cause- Loss is compensable only when it is proximately caused by a peril insured against but not necessarily the nearest