Preparing for Claims

Welcome to my newsletter on Risk in Asia focused on the CEO. This time I’ll turn to the topic which 99% of business people consider most important. “If I have a claim, can I trust in insurance to pay it?” The answer, of course, is : “It depends.”

All too often in commercial insurance situations there is misalignment of understanding and expectation between the buyer and the seller. Sometimes this is willful ignorance on the part of the buyer who deliberately attempts to turn a policy into some sort of all-risk protections when this was never the intent and the wording is not reflective of this. At other times there are genuine grey areas where the buyer has a real expectation that a claim is covered and the policy wording sufficiently ambiguous to cause a dispute. Ideally these disputes get resolved amicably, but sometimes they get litigious. Lawyers on both sides may press for what they perceive as the merits of the case, but experience tends to show that except in a somewhat limited number of cases, litigation and arbitration are rarely desirable. Indeed when insurance disputes do finally get to be decided in court, the outcomes are unpredictable at best.

The prudent CEO and risk manager will take steps well in advance to clearly understand what may happen in the event of a claim situation, especially on the most important policies purchased to protect the organization.

A key benefit of a strong relationship with the insurance policy leader is the ability to carry out claims testing workshops. These can definitively establish how the policy will respond in the event of a claim. The insurance markets are usually very interested to have this discussion too as it helps to break down any misconceptions before there is a live issue to manage. By that time, it’s too late. Even though a lot of expertise and effort goes into drafting policies by all parties involved there can still be some grey areas that remain unclear

A good way to understand how the policy will respond is for the insured corporation to devise, in conjunction with the broking team, a potential claim scenario that cuts right to the heart of any potential or suspected problematic area. The claim specialists from the insurers will be able to explain exactly what is and isn’t covered.

The best way to construct this is to devise a possible catastrophic scenario that really tests the edge cases where the customer may have questions. For each step of the scenario the the question is simple. Will you pay for this based on the current wording and policy. The answer should be a simple yes or no as frequently as possible. So it needs the right people in the room from the insurers team.

For ‘yes’ responses, document and move on. For ‘no’ responses ask why and have the wording explained again if necessary. Then if its a significant issue the question is, can I buy this protection back and if yes, how much will it cost me to do so? The worst outcome is when the insurer says maybe. That’s not so helpful and probably needs resolving one way or the other as soon as possible.

This process is very good news for the risk manager who can then decide how to tackle any gaps that arise. Either by internal provisioning or perhaps renegotiating the wording at next renewal. This may of course come at the cost of an additional premium but it’s better to find out the issues in good time rather than in a meeting with the CEO on the day of judgment.

When it all goes wrong it’s sometimes too late build a relationship

The following pointers should inform how the CEO and risk manager approach insurance and risk management

1 . It’s all about Trust - The CEO and the risk management team need to have strong long term relationships with a selected number of strong market players. Multiple brokers, multiple markets, multiple geographies can all be brought into play to avoid over dependencies accumulating in one area - depending on the customers size, strength and pain points.

2. Manage the programme – don’t just buy - By weaving together a thoughtful approach to policy design, the organization will have strong markets represented over multiple policy lines. This means if something goes wrong at some point on the network , or there is a large claim, there is a broader business relationship than just on the affected policy. That can provide leverage. Use it effectively.

3. Work the Network - The opportunity to have a wider and longer term partnership will normally help ensure that individual matters are resolved expediently and at close to 100% of customer claim value, every single time.

4. Value over Cost - If the corporation has focused totally on cost cutting, instead of value and trust, then good luck. Because when the going gets tough, the insurer will find a way to walk away without a backward glance.

Next time I elaborate on how to get claims paid in more detail. Until then don’t forget to sign up to our free Substack too: https://tunstallasc.substack.com/

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