Claims management
Claims management: 5 technical terms explained – definition, synonyms and legal basis.
Claims Settlement Speed
Synonyms: Claims turnaround time
Claims settlement speed is the time between receipt of a claim and completion of its handling, and serves as a quality metric for an insurer's claims service.
Concept
Claims settlement speed refers to the time between an insurer’s receipt of a claim notification, or the opening of the claim in its claims system, and the completion of processing, known as the final report.
Measurement
Measurement is typically based on the claim’s opening and closing dates in the claims system, since this data can be processed automatically and is therefore suited to systematic reporting.
Significance
Claims settlement speed serves as a quality metric for fast claims handling. A high settlement speed, combined with a low average claim amount and a low reopening rate, is regarded as evidence of good claims service quality and has a significant impact on customer satisfaction.
Initial Reserve
Synonyms: Case reserve (initial)
The initial reserve is the amount set up as the first claims reserve in an insurer's claims system for a newly reported loss.
Concept
The initial reserve is the amount set up as the first reserve in an insurer’s claims system for a newly reported loss, before the final claims cost is known.
Setting the Reserve
Ideally, the initial reserve should exactly match the claims cost that emerges once the loss is fully settled. In practice, however, the amount is often set automatically by the claims system or manually by claims handlers following internal guidelines, based on experience values such as the average claim cost for the relevant loss type over recent years, plus a safety margin.
Significance
To avoid inaccurate reserving, claims handling guidelines typically require the initial reserve to be reviewed promptly against the specific facts of the case and adjusted where necessary. The quality of initial reserving has a significant influence on subsequent run-off results.
Petty Claim (Bagatellschaden)
Synonyms: Bagatellschaden, Small Loss
A petty claim is a loss of low value where the cost of processing and settling the claim is disproportionate to the loss amount itself.
Concept
A petty claim is a loss of low value where the internal or external administrative cost of processing and settling the claim is disproportionate to the actual loss amount.
Relevance for Claims Management
To efficiently handle petty claims, insurers often use simplified settlement processes, such as goodwill arrangements, flat-rate settlements, or digital self-service solutions, in order to minimize processing effort without compromising customer satisfaction.
Petty Claim Settlement Agreements Between Insurers
In the liability field, agreements between insurers for the simplified settlement of petty claims are common, under which, below an agreed threshold, a formal liability assessment is waived and the claim is settled on a flat-rate basis, reducing administrative effort on both sides.
Ex Gratia Payment
Synonyms: Ex-Gratia-Zahlung
An ex gratia payment is a voluntary goodwill payment made by an insurer without acknowledging any legal obligation.
Concept
An ex gratia payment is a benefit voluntarily provided by an insurer to a policyholder or injured party, without any contractual or legal obligation to make that payment being acknowledged or, in fact, existing.
Typical Use Cases
Ex gratia payments are used in practice particularly in borderline cases where the coverage position is legally unclear or doubtful, but the insurer nevertheless wishes to make a payment for reasons of customer retention, reputation, or to avoid costly litigation, without thereby creating a precedent for future, comparable cases.
Legal Protection
To avoid an ex gratia payment being interpreted as an admission of a coverage obligation and thereby prejudicing future disputes, insurers typically secure such payments with an express written statement clarifying that the payment is made without acknowledgment of any legal obligation and without prejudice to future cases.
Large Loss (Grossschaden)
Synonyms: Grossschaden
A large loss is a claim whose size exceeds a defined threshold and which is tracked separately because of its significance for reserves, reinsurance, and statistics.
Concept
A large loss is an insurance claim whose size exceeds an internally or regulatorily defined threshold and which is tracked and monitored separately because of its potential impact on the technical result, reserving, and use of reinsurance.
Relevance for Reserving
Because large losses can significantly distort an insurer’s claims statistics, they are frequently treated separately from so-called attritional losses (smaller, more frequent claims) in actuarial reserving; special statistical methods drawing on extreme value distribution modeling are used for this purpose.
Relevance for Reinsurance
Large losses are the primary use case for excess-of-loss reinsurance, since this treaty form is specifically designed to protect the cedent against the financial impact of individual large losses or accumulated large loss events; the large loss threshold defined in the reinsurance treaty frequently, though not necessarily, corresponds to the cedent’s internal large loss definition.