Claims and loss handling is the utility of insurance; it is the “product” that the insurers pay for.
Claims can be filed by the insured directly with the insurance company or through brokers or agents’ services. The insurance provider may require the insured to file claims on its propriety forms or accept claims on a standard industry form. Insurance companies have claims departments that employ many claims adjusters supported by a staff of records management and data entry clerks.
Incoming claims are classified according to severity and are then assigned to employed adjusters whose authority varies based on their level of knowledge and experience. The adjuster is assigned to investigate each claim, usually in cooperation with the insured. He then determines if the insurance company’s coverage is available under the terms of the policy and the reasonable financial value of the claim. The adjuster also authorizes payment. The insured or policyholder may also hire their public adjuster to negotiate the settlement amount with the insurance company on their behalf.
For the more complicated policies, where claims also tend to be more complex, the policyholder may purchase a separate insurance policy add-on, typically called loss recovery insurance, which covers the cost of a public adjuster in a claim.
Adjusting liability insurance claims is particularly complicated due to there being a third party involved, the plaintiff, who is not obligated by any contract to cooperate with the insurance company and may sometimes see the latter as a deep pocket. The adjuster must also obtain legal counsel for the insured, monitor litigation that may sometimes take several years to complete, and appear in person or over the phone with settlement authority at a mandatory settlement conference when requested by a judge. If the claims adjuster suspects under-insurance, the condition of average may be utilized to limit exposure for the insurer.
When managing the claims handling function, insurers always try to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment.
Insurance fraud is also one of the most significant business risks that insurance companies try to manage and overcome. The conflict between insurance companies and insurers over the validity and/or financial value of claims sometimes results in litigation.
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