Supplementary Notes - Singapore College of Insurance

SUPPLEMENTARY NOTES
Claims Management
(2 nd Edition, 2012)
Date Of Issue: 23 May 2013
The following amendments have NOT been incorporated in the study text. They should be
marked up in your study text immediately.
For examination purposes, the following amendments will take immediate effect.
1. Chapter 8 To replace the 4 th paragraph calculation with the following:
Section 2.3.1
Page 225 The insurer will pay economic limit of
S$3,000
plus 50% of the difference between the repair cost of
S$4,000 and the economic limit of S$3,000 [i.e. 50% of
(S$4,000 – S$3,000)]
In total, the insurer will pay
S$500
S$3,500
Therefore, the insured will make a contribution of S$500 (i.e. S$4,000 -
S$3,000 - S$500) towards the repair cost.
Date of Issue: 1 June 2012
For examination purposes, the following amendments took effect 1 Jun 2012.
1. Examination
Syllabus
(NEW)
To insert new Examination Syllabus after Acknowledgement with Annex A
of this Supplementary Notes.
2. Chapter 5
Section 1.3
Page 105
To replace the entire Section 1.3 with Annex B of this Supplementary Notes.
Singapore College of Insurance
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Tel: (65) 6221 2336 | Fax: (65) 6220 6684 | Website: www.scicollege.org.sg
1

Annex A
To Supplementary Notes
Claims Management, 2 nd Edition
Date Of Issue: 1 June 2012
Singapore College of Insurance
9 Temasek Boulevard, #14-01/02/03/04, Suntec Tower Two, Singapore 038989
Tel: (65) 6221 2336 | Fax: (65) 6220 6684 | E-mail: talk2us@scidomain.org.sg | Website: www.scicollege.org.sg
A1

Examination Syllabus
Examination Syllabus
1. Understand the claims environment
1.1 Claims management strategy
1.2 Claims philosophies
1.3 Organisation design and structure
1.3.1 Claims department within the insurer (divisional /
functional / other)
1.3.2 Interaction of claims department with other functions
1.3.3 Internal structure of the department; job roles, teams,
responsibilities, specialism
1.3.4 Referral points; authorities
1.3.5 The role and responsibilities of the department manager
1.4 Policy interpretation
1.5 Regulation and legislation
1.5.1 Implication of Consumer Protection (Fair Trading) Act
(Cap. 52A)
1.5.2 Contract certainty
2. Understand and apply claims service management practices
2.1 Customer experience – expectations, satisfaction
2.1.1 Ethical codes of practice
2.1.2 Use of Claims service as a marketing tool
2.1.3 Treating Customers Fairly
2.2 Customer retention
2.3 Complaints handling
2.3.1 Alternative Dispute Resolution
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Legal Aspects Of Insurance
2.4 Policyholder litigation and breach of contract
2.4.1 Bad faith
3. Understand and apply claims management practices
3.1 Design and implementation of claims handling procedures for
both first and third party
3.2 Civil Procedure Rules
3.3 The pre-action protocols
3.4 Process review and quality management
3.5 Compliance with claims procedures
3.6 Claims handling operation
3.6.1 Segmentation (volume and complexity)
3.6.2 Authorities
3.6.3 Outsourcing
3.6.4 Delegated authorities
3.6.5 Catastrophe management
3.7 Supplier and relationship management; panels
3.7.1 Loss adjusters
3.7.2 Solicitors
3.7.3 Suppliers of goods and services
3.8 Call centre management
4. Understand and apply claims technical management
4.1 Reserving philosophies
4.2 Interaction between claims, actuaries and underwriting
4.3 Information technology
A3 | Copyright reserved by Singapore College of Insurance Limited

Examination Syllabus
4.4 Management information
4.5 Fraudulent claims
4.5.1 Ethical aspects
4.6 London and Lloyd’s market
4.7 Reinsurance
4.8 Subrogation and recoveries
4.9 International claims
5. Understand and calculate the cost of management practices
5.1 Cost control strategy
5.1.1 Indemnity spend, handling spend and their
interrelationship
5.2 Estimating and reserving
5.3 Leakage
5.4 Cost of the claims function – internal costs, share of overheads,
etc
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Annex B
To Supplementary Notes
Claims Management
2 nd Edition
Date Of Issue: 1 June 2012
Singapore College of Insurance
9 Temasek Boulevard, #14-01/02/03/04, Suntec Tower Two, Singapore 038989
Tel: (65) 6221 2336 | Fax: (65) 6220 6684 | E-mail: talk2us@scidomain.org.sg | Website: www.scicollege.org.sg
B1

B2 | Claims Management
1.3 Cost Of Claims Management
In this context, “cost” refers firstly to the cost of running the claims
operation, and secondly, to the cost of settling the claims by the claims
department. Managing the cost means controlling the amount of money
expended over a defined period of time.
The operating costs are:
• the cost of running the claims department itself, such as the staff
remuneration of the claims department;
• costs allocated to the department from costs of running the entire
operation, i.e. costs incurred running the insurance company as a whole,
such as IT, office space, and other department staff members; and
• external costs, i.e. the cost of engaging service suppliers and vendors.
In this section, we will consider the internal costs relating to the business.
1.3.1 Internal Cost
When we look at outsourcing, we say that the cost of outsourcing
has to be balanced against the savings made in respect of internal
costs. However, what are these costs and how do they impact on
the business
Every dollar taken in premium must meet the cost, not only of claims
and of fees, but also of running the business. These costs include,
but are not limited to:
• Staff costs, including salaries, bonuses, employee benefits,
employer’s contributions to the Central Provident Fund;
• Corporate tax and other taxes;
• Cleaning and sanitation;
• Maintaining the office building, property, machinery and office
equipment (e.g. company cars, photocopiers, computer system,
phone system, etc.);
• Utilities, including air-condition;
• rentals;
• Stationery, printing and mailing; and
• Company insurance.
In addition, if an insurer has a branch network, each branch will need
to contribute a proportion of its income to the head office for its
share of overheads. These overheads include, but are not limited to:
• travel costs;
• hotel costs
• training;
• subsistence;
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5. Claims Cost Management | B3
• entertainment;
• marketing;
• printing;
• legal fees;
• human resources;
• server maintenance; and
• IT helpdesk.
Having looked at some of the internal costs of the claims
department, we will move on to consider some of the external costs.
1.3.2 Fee Spend
Insurers seek the service of loss adjusters and legal advisers to assist
in the handling of complex or large claims. Such service providers
have their own stakeholders who are running these commercial
enterprises to maximise profitability. Therefore, it is essential that
the claims manager negotiates a competitive price prior to the
agreement of service rendering by such service providers, be it
hourly rate or fixed fee basis.
These are the costs of actually running the claims department. The
other major source of expenditure is the cost of settling claims.
1.3.3 Indemnity Spend
Indemnity spend is the total spend by an insurer in respect of
payments made to indemnify policyholders following the submission
of valid claims. Insurers are able to benchmark average indemnity
spend for certain types of claims across the market, as well as being
able to compare and contrast it in the light of different portfolios of
business. This is usually undertaken by reference to premium in
order to calculate a loss ratio, thus:
Indemnity claims spend
Premium
= Loss ratio
1.3.4 Controlling Costs
One of the roles of the claims manager is to manage the cost of the
claims department. There are several ways to compare the cost of
managing a claims department against those of its competitors:
• unit case costs, i.e. the average operational cost of handling a
claim;
• average time spent on one claim; and
• claims expense ratio, i.e. the ratio of internal costs to premiums.
As claims management is specifically interested in operational costs,
it is also important to consider how to control these, through:
• competent and well-trained staff;
• efficient administrative support;
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B4 | Claims Management
• efficient claims procedures;
• efficient record-keeping;
• a well-written corporate claims philosophy;
• use of a quality management programme;
• effective management of the claims department;
• effective use of IT; and
• use of outsourcing.
Operational costs often add up to a significant outlay for the
insurance company. In order to keep these costs to a minimum,
there should be a constant review to incorporate potential:
• restructuring;
• merging;
• management changes;
• IT system changes;
• systems and processing changes;
• partial or total outsourcing of the claims function; and
• changes in the make-up of the book or the nature of the risks
written.
The geographical structure of the company can also influence costs.
A trend in recent years is to have fewer and larger cost centres.
The claims manager cannot analyse the management of the
operational costs of the claims department in isolation: any reduction
in the operational costs can have an impact on how well it operates.
A reduction may have an impact on:
• how many claims are overpaid;
• customer satisfaction reflected in:
- reduced customer retention;
- reduced customer enquiries;
- damage to brand and reputation;
- FIDReC adjudication fee charges as complaints increase; and
• the potential for punitive costs / awards if deadlines are missed.
Such effects may outweigh savings made. Conversely, an increase
in operational costs - provided that they are properly targeted and
can result in an improvement in areas important to the customer - is
likely to have a positive impact. The claims manager needs to
balance the cost of the operation against the desired level of service.
A company can gain a competitive advantage by having the most
efficient expense ratios. An efficient expense ratio gets the balance
between cost and loss of expertise right.
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5. Claims Cost Management | B5
Many insurers prefer a lower initial cost base at the outset and then
try to control spend, by putting in place rigid processes via IT, audit
and supervision.
The importance of claims cost in the insurance industry cannot be
underestimated.
If the cost of claims at any point in time (including the estimated
future cost) exceeds the available resources to pay such liabilities,
then the insurance company is technically insolvent and must enter
into insolvency. Hence, the estimation of future liabilities is just as
important as the control of current claim payments.
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