Claims Handling and Liability Assessment
This domain tests the handling of a claim from notification to settlement or repudiation, and the assessment of third-party liability. Questions often turn on coverage verification, proximate cause, quantum and the discipline of reserving.
The claims process
Acknowledge and record notification, verify cover (policy in force, peril covered, exclusions, conditions precedent, sums insured, excess), investigate, reserve, then settle, negotiate or repudiate. Where coverage is uncertain, issue a reservation of rights so the insurer is not deemed to have accepted liability.
Quantifying an indemnity claim
Establish the basis of settlement - reinstatement, repair, market value or indemnity value - then deduct excess, salvage proceeds realised, and any betterment where the insured gains from new-for-old. Subrogation rights pass to the insurer after payment.
Assessing third-party liability
Four elements must be established: a duty of care owed, breach of that duty, causation, and damage that is not too remote. Defences include contributory negligence, volenti non fit injuria, and statutory limitation. Policy limits and defence costs treatment (inside or outside the limit) must be checked.
Reserving
Case reserves per claim, plus IBNR for claims not yet reported and IBNER for deterioration on known claims. Reserves must be adequate, consistent and reviewed - reserve deficiency destroys solvency and distorts underwriting results.
Worked example
A three-year-old machine with sum insured 200,000 and a market value of 120,000 is a total loss; salvage realises 10,000 and the policy excess is 5,000. On an indemnity basis the settlement is 120,000 − 10,000 − 5,000 = 105,000. If the policy were written on a reinstatement basis, the payout would be the cost of replacing with equivalent new machinery, subject to the sum insured - and betterment would not be deducted.
Traps that cost marks
Admitting liability at first notification; failing to reserve rights where a coverage issue is live; ignoring salvage or subrogation recovery; applying reinstatement wording to a market-value policy; and missing that defence costs can erode the limit.