Unpacking the Complexities of Insurance Claims

Hello and welcome to Insurance Business TV for our Professional Risks Power Panel. We're going to focus on the insurance claims process. We've gathered our experts. Genevieve Matthews is Client Director with WTW Phoenix. Nick Beswick is Head of Professional Indemnity in Australia and New Zealand for New Line Australia Insurance. And Shauk Vandermeer is CEO of OmniShore. They're all based in Sydney. Well, welcome to all of you. And Shauk, if we could just start with you, what are a couple of the most common causes of delays in the claims process? And I mean, how long are most of your claims taking, if it's possible to generalise in that way? Yeah, sure. Thanks. Thanks, Danny. Look, I think at least in our business, delays are often stemming from a number of issues. I've tried to sort of summarise the top four here, but incomplete or missing documentation in the claims process seems to be a problem, disputes over policy interpretation, complexity of proving causation of the actual claim itself. And also another issue that we're having at the moment, which leads to delays is late notifications or vague initial information. Simple claims tend to take two to three months to come to fruition, whereas more complex claims can easily take six to 12 months or longer, depending on litigation. And Nick, what about you? I understand you have an example you can share with us. So it's really on a portfolio basis. Most PR claims are settled within one to three years. If they're more complex matters involving litigation and multiple parties, they may take five to seven years, depending on the complexity. Just adding to Shauk's comments, I'd rather sort of go over the same points. I think where claims can be complex when you're dealing with more complex classes of business, like construction or engineering type PR claims, brokers need to be mindful of counterparty risk. So the quality of the security they're placing the business with and what the reputation for managing client claims are. If you're placing business with an MGA, you've really got to look at the carrier or the insurer behind them and their reputation and how frequently that MGA may be changing security. And also does the carrier or the insurer have a history of putting portfolios into runoff, which can create delays and confusion around who's actually responsible for the claim. And Genevieve, what about you? I mean, what are you seeing there in terms of the delays and the causes and how long are most of your claims taking? Yeah, so without repeating what the guys have said, I would say in our space with professions, because we're dealing with mainly architects and engineers, or I do, I'm finding regulatory investigations are really delaying. And also just because they're working on collaborative projects, it's determining who is liable. So, I mean, where do you stop? It's 18, 24 months, longer. It really depends on how many parties are involved. Genevieve, let's stick with you. I know as a journalist writing about this and just as someone who buys insurance, that the wordings can often seem ambiguous, even if they might not be to an expert like you. Are you seeing that impacting the claims handling process at all? Yes. So, vagueness in PI wordings can be particularly problematic, particularly for professionals. Grey areas often slow down the claims process and it can also lead to disputes. So, whenever we're placing specific policies for industry types, we always advocate for profession specific endorsements and work closely with underwriters to ensure clarity from the outset, like what is the intent before placing the policy, you know, definitions. And just examples of this is in the A&E space, terms like fitness for purpose versus reasonable skill and care can drastically affect coverage. And law firms, issues often arise around dishonesty, exclusions or prior acts. So, it's just knowing the industry as a broker that you're placing the PI and just getting clarity around that. And Shauk, turning to you, you have an example you can share that can illustrate this policy wording issue. Yeah. So, I mean, a good example that we see, you know, relatively frequently is where a client commits to a fee refund for, I guess, an adverse action under the professional indemnity policy. So, unfortunately, there are extensions which apply to these type of claims, such as mitigation costs, but clients tend to not realise initially that they have to actually seek the insurer's approval before incurring those costs, which then basically can result in that claim being denied or the insurer claiming prejudice against those fees. So, we always recommend to clients, look, in the strictest sense, PI is there to compensate third parties for consequential financial loss that they're able to prove. And if they're able to prove that, then great, but you cannot go ahead and just refund a client fees under a particular body of work to avoid a claim. And Nick, what about you? How are you seeing the policy wordings and ambiguities there impacting the claims process? That's an interesting point. I think how ambiguity in policy wordings is dealt with from insurer's point of view really should be fairly straightforward these days, particularly in the consumer-driven environment that we live in. By and large, any ambiguity in a policy wording will be found in favour of the insured, particularly if an insurer is seeking to rely on exclusion, and there's doubt around the language of that exclusion and how it should be interpreted. Ambiguity can be avoided by the underwriter having a good knowledge of the underwriting process and how the wording is intended to respond to claims that are likely to emanate from writing that risk. Where it does arise, the claims team might have to seek additional information from the insured to make sure that the facts of the claim are well understood and maintain good lines of communication to ensure consistent and transparent outcomes. Nick, let's stick with you. You mentioned communication there. What do you see as being some of the causes of the communication breakdown that can happen between the brokers and the insurers and the insureds during the claims process? Well, I think for an insured, especially if an insured hasn't been involved in lodging a PI claim in the past, the process can seem quite overwhelming, particularly as the insurer begins their investigation of the claim. So I think to some extent, the broker needs to coach the insured through that process, and the insurer needs to deal with the insured in an understanding way, listen to their specific needs, managing their expectations, which I think is where a lot of claims delays occur, where there's a mismatch of expectations between the insurer and the insured, and communicating next steps in the timeframe so everyone knows what comes next and when that should occur to help manage those expectations through the claims process. And Genevieve, Nick mentioned expectations there. That's one of the things you like to focus on. Yeah, I would say major breakdown is definitely expectations and timelines. You've got the insureds often expecting quick resolutions, and that's particularly when it's reputational damages of concern, so completely understandable. But we also need to respect that insurers do need time to assess the liability and coverage, but not to also sit on a claim either saying that they're assessing, but it's on their busy to-do list. Also, lack of clarity in documentation, whether that be the insurers may not have provided all the relevant information, or the insurers have not explained their decisions clearly, or why they need this additional information. So the key part here is obviously the broker. We're playing that critical role in managing these relationships and ensuring that the communication is timely, transparent, and that both parties are aligned and across what's required. And Shaw, coming to you here, what do you see as the main cause of communication breakdowns? Yeah, look, not much to add in terms of what the guys have said. I think sometimes being the middleman and the project manager when it comes to managing claims as a broker is a really tough position to be in. Communicating third-party needs to a client, these third parties are claims investigators, insurers aren't internal people, they're escalation points, other third party claims authorities that are provided. It's a really difficult scenario to explain to a client, hey, we think it's going to take two weeks to get a resolution or an indemnity decision on this. In reality, does it take that long? Sometimes we just don't know. And timelines, we're giving our best estimate in terms of timelines, and clients don't want to hear that there are delays. That's the last thing they want to hear is that there's going to be delays in getting money out of an insurer when they're already in a fraught financial position. Or they're looking to get the monkey off their back, so to speak, and get a resolution to something that's been plaguing them. So the broker really sits in a tough spot and communication, as the team has said, is paramount. And if there is a problem, it's communicating that problem very quickly and delivering that news quickly, it will usually help, I guess, keep the client on your side. Sure, let's stick with you. One other thing that can be tough is explaining new regulations and how they might be impacting the process. Are you seeing any new regulations coming in that are having a particular impact? Yeah, look, I mean, the new regulations that are having an impact on the, at least the PI and DNO space are significant. I think Nick's already touched on some of the building practitioners' code changes. Look, they've been significant in terms of, I guess, more individuals or more businesses requiring that PI cover and where the cover applies and who it applies to and who needs it. So the other areas as well is, again, like Nick and Genevieve said, around the financial accountability regime, which has come in dictating financial services and insurers. So senior executives at insurance companies are facing significantly stricter accountability and their obligations and governance to make sure that claims are paid fairly and claims are managed in a way that puts the client first. And Nick, you were mentioning earlier that you're seeing ASIC taking a bit more of an interest in this area. That's kind of the regulatory change that's impacting your clients. Yeah, I guess it comes from the regulatory environment as well as case law. So ASIC recently indicated a critical need for the insurance industry's transparency and accuracy in reporting concerns about insurance handling processes in light of what it says is a significant increase in insurance complaints since 2022, particularly involving delays. So ASIC are monitoring client claims handling processes quite closely. If they think that there's been a breach of the duty of utmost good faith, they can take an action against insurers under section 13 of the Insurance Contracts Act. In addition to regulatory framework, recent case law has raised some issues around the application of a common exclusion in most claims made wordings around prior circumstances and insurers' ability to rely on that exclusion. So that needs to be watched quite closely in how insurers decide to respond to that. There's a couple of examples of issues that insurers need to deal with and those environments are continually evolving. Thanks, Nick. And Genevieve, what are you keeping an eye on? Yeah, not much to add, just that it really is raising the bar on professional conduct standards and mandatory breach reporting. For example, professionals in legal, financial and healthcare sectors are seeing more claims triggered by regulatory investigations and that obviously adds complexity and often requires legal input. So claims assessments are being more thorough, which can obviously extend the timeline and increase the need for more specialist advice around those areas. Genevieve, let's stick with you for our last question. What's one thing that could improve in this claims process that would help things, do you think? It's very complicated, but is it possible to pick on one thing? Yeah, it is very complicated, which is why I'd like to see more streamlined early engagement, particularly from insurers, especially when the claim involves reputational risk. That probably puts quite a heightened focus on clients wanting claims to progress or be smoother. Having dedicated claims handlers with sector-specific knowledge, I feel would make a huge difference. It would reduce back and forth, which would hopefully lead to faster resolution. That is one thing that Willis has made that we do have. We do have that dedicated claims team and that does significantly enhance the claim experience. So I'm not saying that not all insurers don't have it, but we do find sometimes there are some insurers that don't have that or they've passed a claim on and then there's that disjointedness. They've got to start from the beginning. So a streamlined process would be my wish. And sure, a streamlined claims process without naming names, I suppose more dedication from some insurers perhaps to the claims process might help. Yeah, look, I think the reality is every broker would love if we can speed up coverage determinations and we need a way that we can minimise disputes over interpretation of policy language. I mean, those are the two things that I think that will help immensely. One practical way of doing that, and I guess, like we said, insurers, part of our duty is to compare insurers not only on policy coverage and on underwriting skill, but also across how they manage our clients' claims. And I guess at least from our business's point of view, those insurers that are outsourcing less of their claims process and deciding to implement a claims management solution where they either have in-house legal or in-house capabilities to assess claims quickly, we are placing more business now with those typical sort of underwriters because we know that we're going to have a good claims experience, not a poor claims experience, which inevitably a poor claims experience leads to a lost customer, which we don't want. And Nick, coming to you finally, how do you see a way of improving the claims process here? I tend to think it starts on the underwriting side a lot of the time, and just removing doubt around intent of wordings and policy coverage that creates confusion later on. I've had, certainly as an underwriter and a portfolio manager, I've had my best results in drafting wordings and endorsements where I've worked closely with the claims team and the claims manager. I like to think that I engage with claims teams quite closely when I'm drafting wording or drafting an endorsement, not all endorsements, but ones that are complex or a bit tricky, or trying to deal with a particular issue. I think early engagement in drafting with claims would be an enormous benefit for everyone. And they're talking to lawyers and claimants every day, so they get feedback on this stuff all the time, whereas I may not, and underwriting teams may not. And I think drafting skills as a training area for young underwriters would be very important as well, and make that a more important part of their training and development, rather than just getting out there and writing GWP. Thanks, Nick Beswick. And thanks to Sjoerk van der Meer and Genevieve Matthews. That wraps up our Professional Risks Power Panel. Thanks for watching Insurance Business TV. Bye for now.