In the previous
unit, we have discussed about the customer service angle of the insurer’s
business. In insurance, the customer looks forward to the insurer as the source
of solace when the insured tragedy hits. He expects him to come to his help
when he needs him the most, like the proverbial friend in need. The consumer of
the insurance product, having fulfilled his part of the obligation of the
insurance contract by paying the premium, waits in expectation, worrying how the
big insurance company will react to his loss and whether it would fulfill its
part of the promise. He is weak as an individual or as a corporate, pitted
against an insurance company. When he is further weakened by the disaster that
has struck him, he would not like to fight a legal battle with the insurer.
However, when confronted with a loss, he would be only too quick to be offended
by any act of discourteousness, insensitivity or injustice from the side of the
insurer. For the insurer, the acid test of the insurance contract is when the
claim occurs and the insured expects all the services that the insurer can
provide.
This is an unexpected happening for the insured. But for the insurer,
he should always be on the alert, expecting someone to suffer a loss and lodge
a claim. He needs to be in a position to render whatever service is expected of
him as per the contract of insurance. He needs to render it with as much
promptness and sensitively as possible in order to retain the customers
goodwill. He needs to look into the claims professionally enough to ensure that
the claim is payable within the framework of the contract, that the quantum of
the amount claimed does not exceed the amounts stipulated under the contract,
and that there is no moral or morale hazards involved in the claim. In having a
proper system for claims settlement, the insurer primarily fulfills his
contractual obligations to the insured in return for the premium that the
company has received. By handling the claim professionally, he insurer ensures
that his company pays only to the extent that it is bound to pay as per the
contract and not for anything beyond its purview. If the insurer settles the
claim recklessly, beyond what he has agreed for, he compromises on his
company’s interests and sends a negative feedback to the market that he is
careless and can be fooled. If he pays less, he loses customer goodwill,
exposes himself to legal quarrels, and in the process tells the market that he
does not deliver what he promises and is not trust worthy.
In essence, the
insurer needs to handle the claim professionally enough to fulfill his promise
to the insured, as well as to retain the goodwill of the market and attract
more business in the process. Some authors opine that claims settlement is the
biggest advertisement fo an insurer. Losses can be identified under different
types, based on certain characteristics. Some of them are listed below.
Definite Loss: In this type of loss, the events that caused the loss should
have (at least in principle) taken place at a known time, in a known place, and
from a known cause. The losses, automobile accidents, and worker injuries meet
this criterion. The types of losses that may be definite only in theory (Eg.
occupational diseases where prolonged exposure to injurious conditions would be
involved, but where no specific time, place or cause is identifiable) do not
fall under this type. In definite losses, the time, place and cause of a loss
are clear enough that a reasonable person, with sufficient information, can
objectively verify all the three elements. Accidental Loss: In this type, the
event that constituted the trigger of a
claim would be fortuitous or at least outside the control of the beneficiary of
the insurance. The loss would be ‘pure’ in the sense that it results from an
event for which there is only the opportunity for cost.,.
This is in contrast
to small losses where the above incidental costs may be several times the size
of the expected cost of losses and where paying such costs are not in the
interests of the insured. Calculable Loss: A calculable loss is one in which
there are two estimable elements (even if not formally calculable) the
probability of loss, and the attendant cost. Probability of loss is generally
an empirical exercise, while cost has more to do with the ability of a
reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim
presented under that policy to make a reasonably definite and objective
evaluation of the amount of the loss recoverable as a result of the claim