Impact Of Risk Retention On Claims Management Of Insurance Companies In Nigeria

By Oyetola Muyiwa Atoyebi, SAN

Businesses and individuals are constantly exposed to risks both internally and externally, due to the frame of the environment and the economic ecosystem. It is therefore important to manage these risks through effective risk management techniques.

RISK MANAGEMENT

Generally, risk management can be viewed as any conscious effort put in place to mitigate risk or loss. More specifically, Risk Management can be defined as the recognition and evaluation of possible losses and the best course of action to mitigate these likely losses.

Insurance Risk Management is the analysis of a customer and the likelihood and effect of potential and probable losses that are peculiar to the customer’s profile that the insurer (Insurance Company) would be expected to settle. It is used to accurately calculate the amount and manner of coverage a customer is entitled to or that would best benefit them, given the customer’s profile. The insurer examines the probable loss that can be suffered and comes up with the best approach to managing them.

Insurance is a mechanism that seeks to manage the risks of a policyholder. It is important to state that Insurance does not and cannot cancel the risk, it can merely manage it by bearing part of the financial implications, that might be too burdensome for the policyholder.

CLAIMS MANAGEMENT

In accordance with the terms contained in the Insurance Contract entered into by the insurer and the insured, in the event of loss covered by the contract, the insured or policyholder expects liquidated compensation.

Claim is the demand for compensation by the policyholder for a valid loss suffered where such loss is covered by the insurance policy or contract. This means that for a policyholder to bring a claim, the loss must have been that which was anticipated and covered by the insurance policy and must not be a mere frivolous demand. What therefore guides the demand to be made by the policyholder is the Contract between both parties as both are bound by the terms of the contract.

Claims management can be described as the sum total of all the measures or mechanisms employed by the insurance company to effectively access and evaluate the claims made by a policyholder. It is meant to efficiently streamline claims that should be paid by the insurer to maximise profit and prevent losses to the insurer[1].

PROCESS OF CLAIMS MANAGEMENT

1. Insured notice of loss: the insured is expected to notify the insurer of the occurrence of loss. Usually, the policy contains the stipulated time within which the insurer is to be notified and this timeline must be strictly adhered to. If no mode of notification is prescribed, it is advisable that the notification be made in writing. The rationale behind this is to ensure that the notification is in a form that can be produced on request to prove notification and adherence to the time limit.
2. Presentation of details of loss suffered: the insured victim is expected to supply adequate information on the particulars of the loss suffered. Insurance companies usually have a form known as the claim form for this purpose. The essence of the form is to guide the policyholder in providing details necessary and incidental to the loss and to prevent irrelevant digression. The details to be supplied must include the personal details of the insured, the details of the loss, an accurate valuation of the loss suffered, the manner of the destruction as well as the cause and the nature of the Insurance cover.
3. Evidence of Claims: when the particulars have been supplied, the duty of the insured extends to proof of the loss claimed to have been suffered. The nature of proof might vary depending on the nature of insurance and the extent of the coverage. It is essential that the insured proves satisfactorily that an event covered by the insurance policy occurred and the loss suffered was as a result of the happening. They also expected the insured to prove the extent of damage suffered by the provision of pictures or receipt of repair or invoice. It should be noted that every type of Insurance has evidence peculiar to it that must necessarily be supplied.
4. Investigation of evidence: after the due submission of evidence of claims, the insurance company is expected to carry out thorough findings to verify the facts submitted to it by the policyholder. This is a thorough investigation of every assertion of the insured to ascertain how accurate the information supplied to it is. The Insurer is expected to verify the extent of the damage, the contributory negligence, if any, of the insured, its eventual liability, and the extent of the liability. The need for a thorough investigation is premised on the fact that once a claim is established, proven, and investigated, the insurance sum becomes immediately payable.
5. Furnishing Claims: Where the investigation verifies the claims of the insured, the insurance sum becomes immediately payable. The mode of payment can be by giving monetary compensation directly or by repairing or replacing the damaged property.
6. Discharge: when compensation has been provided, a discharge certificate is to be signed by the insured to serve as evidence that the claim has been settled and the liability of the Insurer has been discharged.

CLAIMS MANAGEMENT OFFICERS

Every Insurance company has its tailored claim management method and this affects the manner of claim management officers it would have depending on the manner of services they provide. There is a need for the existence of officers or managers to however effectively manage claims. These Officers include:

1. Claims examiners
2. Claims adjusters
3. Underwriters
4. Actuaries
5. Loss control representatives
6. Claims investigators
7. Auto damage appraisers

Claims examiner

The Claims examiner has two basic duties. They are to examine claims to ensure that it is commensurate to what is obtainable in relation to that particular damage and property. An example is a motor vehicle insurance claim. The examiner examines the claim and checks with the current market value for the part that was claimed to have been destroyed and compares it with the amount presented by the policyholder or its accredited representative. The duty of the Examiner is essential as it ensures that inflated claims are discovered and treated appropriately. The second branch of his duty is to examine prospective policies and determine their viability. An instance is a life assurance policy. The duty of the examiner would be to ensure that the policyholder is not suffering from any terminal illness that has presented a short and definite lifespan[2].

Claims adjusters

While examiners examine, adjusters investigate. They are expected to physically inspect damage and act as impartial advisers, giving clear and unbiased conclusions as to the liability or lack thereof of the Insurer. Apart from physical inspections, they are also expected to question witnesses or visit places incidental to the damage to form a well-rounded opinion and advise accordingly.

Underwriters

Underwriters determine the eventuality of a loss and the coverage of a policy. An underwriter is expected to fix the sum payable by an insurance policyholder.

Actuaries

Actuaries utilise statistical data and mathematical analysis to determine the likelihood of a policyholder making a claim and use their findings to fix coverage sum to minimize loss to the Insurer.

Loss control representatives

They work hand in hand with the underwriters, supplying necessary data to assist the underwriter in making informed conclusions on policies.

Claims investigators

Where there is reasonable suspicion by the Insurer of fraud or collusion on the part of the Insured victim, the claim investigator is expected to confirm details and dispel suspicion satisfactorily. It should be noted that an investigator functions when there are traces of fraud or irregularities. This means that the totality of his function is to confirm a suspicion.

Auto damage appraisers

They are usually used for auto policy. They give an estimate of the cost for repair of damage to an automobile to aid the insurer compare same with the claim of the insured. The Appraiser can be one representing the Insurer but assisting the insured or representing the insured but reporting back to the Insurer.

IMPACT OF CLAIM MANAGEMENT ON INSURANCE RISK MANAGEMENT

There is no effective Insurance Risk Management without Claims management either by a claims department or a Claims Management Company. The greatest impact of claim management on the management of risk in Insurance Companies and in the sector generally is that it prevents a barrage of claims. The system of Claim management employs thorough investigation of claims and prevents frivolous claims from being brought before the Insurer. Adequate checks are carried out, properties are inspected and liability is determined, eliminating claims that are unnecessary, fraudulent, or plain outrageous. The effect of this is that it saves the insurance company from spending resources on Claims not worthwhile, saves the Insurer money and aids in profit-making[3].

It is equally beneficial to the policyholders. This is because, where the Insurer recurs losses from claims, same is distributed on premiums and increases the amount payable by customers. In the handling of Claims, effective claim management is a double-edged sword. It maximises profit for the Insurer and settles claims satisfactorily.

Claim management is not only employed when claims are made but before the policy premium is fixed. What this implies is that due to the near accurate estimation of the likelihood of the occurrence of a loss and the investigation of new policies about to be taken, it aids in effectively setting premium payable in a sum that does not result in a loss for the Insurer.

It also ensures that the Insurance Company is shielded from the risk of incessant litigation which is hardly cost-effective as claims are verified before the claim is settled and claims are handled faster to satisfy the customer. Satisfaction of the customer is the bedrock in an industry as competitive as the Insurance Industry and efficient Claim management helps to ensure this and give insurers an edge.

CONCLUSION

Insurance Companies face a lot of challenges ranging from government policies to tight competition and recurring losses. Delay in handling claims can affect the operating costs of the insurer. Settling legitimate Claims early through effective claims management ensures minimal operation costs and lends a competitive edge.

SNIPPET:

Satisfaction of the customer is the bedrock in an industry as competitive as the Insurance Industry

KEYWORDS

Insurance, Claims Management, Risk Management, Insurer, Policyholder.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Litigation Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Tobenna Mogbo

Tobenna is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Litigation Practice.

He can be reached at tobenna.mogbo@omaplex.com.ng

[1] S.K Borden, & B.B. Abbott, “Research design and method: Process approach” (5th edn). New York: McGraw-Hill(2002).

[2] T.O., Yusuf, & F.S. Dansu,” Effect of claim cost on insurers’ profitability in Nigeria”. International Journal of Business and Commerce, (2014). 3 (10)

[3] S Roder,. & G Jamieson, Insurance fraud: The victimless crime. Issue 34. Hong Kong: KMPG International (2005).