Why Insurance Claims Are Not Paid

Date: May 02, 2006

Authors: Frank Egan B.A., LL.B., A.C.L.A., F.T.I.A. (Notary)

Normally there are a number of reasons why insurers fail to pay or deny insurance claims.  The principal ones are:

  1. Non Disclosure of material fact;
  2. Failure to abide by the doctrine of the utmost good faith;
  3. Fraud and/or overcapitalisation of loss but the latter only applies to deny that part of the claim;
  4. Arson as a subset of fraud;
  5. An inability of the insured to provide any or adequate strict proof of loss;
  6. A breach of policy conditions;
  7. A failure by insurers to properly apply policy conditions (eg. co-insurance, average or a misapplication of theft or burglary sub-limits as applied to jewellery or the misapplication of the condition precedents, or condition subsequents to the policy);
  8. A failure by insurers to properly investigate and assess a claim.

Unfortunately some insurers lack real insurance claims expertise as too many people are leaving the insurance industry.  Despite the rhetoric most claims are treated as commodities.  Many customer service officers, individual client service managers or claims clerks have very limited experience whether they are dealing with corporate, commercial, business or personal lines or domestic claims.  The reality is that there are more claims to be processed and less capable or experienced people to deal with them which affects claims decisions. This is not helped because some insurers are so totally shareholder and cost driven they overlook the need to protect their client base.  Insurers talk about their retention rates which is the percentage of policies renewed annually with them yet many are struggling to maintain retention rates of between 85-90% with only a few performing in the low ninety percents.  What this means is that insurers are losing annually anywhere between 5-15% of their client base.  Most insureds are unaware of this as the only time they know the value of what they have bought is when they have a claim.  In some cases they are less than impressed.

Internal disputes resolution was introduced by insurers to provide a better outcome for their clients.  Unfortunately some insurers treat claims as a process and have commoditised them.  This is supposed to produce a better outcome for clients and, to be fair, in some cases it does, yet in others it cannot as one process does not fit all claims.  Some insurers believe that by treating claims in this way they are able to provide better customer service, speedier resolution of claims, more effective control over costs, reduced claims settlements and improved retention rates across all classes of their business.  It cannot work for all as it does not take into account the individual circumstances of individual claims which fall outside the norm and which therefore require a different approach.  It is in this area where real expertise is needed and as is so often the case many insurers do not possess it due to high staff turnover as claims is not seen as being “sexy” nor providing a secure career path.  Unfortunately inconsistent claims decisions means that sometimes the insured fails to achieve true indemnity under the policy whilst the insurer loses a client.  This could amount to having the claim denied, refused in part, incorrectly quantified or misunderstood.  Whether you be an insurer or an insured and you become involved in a problem claim seek independent legal advice from LAC Lawyers.

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