10 Tips For Getting Claims Paid

Originally published in Metropolitan Corporate Counsel (May 20, 2014)

Insurance is a strange business. The less promised product insurance companies deliver, and the more slowly they deliver it, the more money they make. The "product" in question is not insurance policies, but payouts on claims.

An insurance company's goal is to obtain the largest premium for the least amount of risk. An insurance company profits primarily by investing those premiums for a return. Ergo, the longer it holds onto the premiums and avoids paying claims, the more profits it will earn. The two primary metrics are the loss ratio - the ratio of premiums to claims payouts - and the "float" - the time lag between collecting premiums and paying claims. That time is money for the insurance company.

For a policyholder, the key to getting around these disincentives to claims payment is understanding the economics of insurance. Reinsurance is key. If there is adequate reinsurance for a claim, the insurance company may be more amenable to payment. By helping the insurance company facilitate its reinsurance claim, you will better your position to maximize coverage for your loss.

The ten steps below are designed to help you minimize the insurance company's resistance to claims payment. Together, they constitute a blend of pressure to keep the claim moving and support for the insurance company's own quest for reinsurance payment, which in turn will facilitate a claim payment to the policyholder.

  1. Give Notice Early, Broadly And Often

    Some first-party insurance policies require the policyholder to give notice of a claim within a fixed period, sometimes as short as a week. Therefore, when a claim arises, give notice as soon as possible under as many insurance policies as may be applicable. Supplement that notice as you develop more information about the claim.

    Risk managers sometimes fear giving notice, as they believe it may impact renewal. The loss should be identified anyway in the renewal application to prevent a misrepresentation/concealment defense. Also, consider that giving notice as soon as possible will allow your insurance company to give notice to its reinsurer as soon as possible, and thus facilitate claims payment.

    Remember that providing a notice of occurrence is not a demand for payment and so it should not impact the insurance company's loss ratio. A notice of occurrence also allows the insurance company to conduct an investigation of the loss. If the insurance company has the opportunity to promptly investigate a loss, it can avoid prejudice. Later, you can decide whether and when to make a demand for payment.

    Although almost all states require that insurance companies that seek to deny coverage on grounds that the policyholder failed to provide timely notice must demonstrate prejudice (or that the failure to give notice was a material breach), it remains prudent to give notice early, broadly and often. This minimizes the chance...

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