Local v absent claims departments and other claim service considerations.

Claims Service - Are they there when you need them?

There is a cost to an insurer to have claims departments in each state and or territory in Australia. To reduce costs many insurers have centralised their claims department in one or two states while some insurers have elected to use a Third Party Administrator or Claims Management provider. (Claims Management should not be confused with Claims Preparation or Loss Management).

After 40 years of claims I have come to the realisation that as a general rule of thumb, the further the Insured is from the Insurer’s cheque book the harder it is to get the money out of the Insurer. This is particularly the case with off shore or absentee claims departments/managers.

With the natural disasters the claims that took longest for us to settle were without doubt the ones through Lloyd’s or other overseas offices where they did not have a local claims expert. I know that this will disappoint and even horrify senior managers within Lloyd’s etc but I am happy to provide example after example to demonstrate my position.

When it comes to a natural disaster, if the claims personnell are in the same community they feel for their customers more. This even goes for major disasters in the same country or even between countries that are close to each other like Australia or New Zealand. But when the claims department is in London, elsewhere in Europe, the US or Asia they do not have the same feeling or sense of urgency. Further they either do not know the local legislation such as Australia’s Insurance Contracts Act (1984) or Code of Practice. I do not know how many times I sent a link to the Insurance Council of Australia’s website to an overseas insurer/claims manager. No one thanked me nor did they accept they were bound by it even when like Lloyd’s they were a signatory.

With centralised claim departments we can see the same thing happen particularly during natural disasters where there are simply not enough resources.

As I say there is a cost for an insurer to have local claims teams and if these insurers are not supported and people only buy insurance on price (a foolish strategy at the best of times) then to compete we will see even more centralisation and the loss of more claims departments.

The location of the claims department is only one thing. The other is the level of service they provide. I would like to give a couple of examples where making a decision on price alone has come back to bite the Insured and the broker on the rear end.

The first is a claim involving a restaurant on land zoned as rural but with a special dispensation. The restaurant was destroyed by fire and the council have decided to tear up the special dispensation and will not allow the Insured to rebuild. It will take some time to sort this out. The Insured will fight this through the relevant court and does not want to rebuild elsewhere. Any honourable insurer would pay out the claim on the damage on the building and contents on an Indemnity Basis and hold final payment until the repairs are reinstated. This approach is taken all around the world. Not with this insurer. They refused make any payment other than in full and final settlement. The Insured can have a ridiculously low indemnity value on any test (just over 50 per cent on a very well maintained building of massive construction mostly less than 30 years old) or their estimate (again clearly under-priced) reinstatement value when the client actually gets permission to rebuild. To me this borders on unconscionable behaviour where a large Insurers is using their economic muscle in an attempt to force a small Insured in taking a settlement much lower than they deserve. Luckily in this case the client has the financial security and means to take this to court. I support this position as it will embarrass the Insurer with the broker cluster group and provide a precedent for this Insurer and others like them not to act this way. As an aside, I rang our sister company in the Insurer’s head office to discuss this company’s approach to claims in that country and they could not believe it. They have offered to take the claim to the CEO of the Insurer to have the decision overturned. This is certainly an advantage for us building our global network and it is my intention to visit the Sydney based claims manager and have one last go at getting this claim resolved without the need for expensive litigation or having a busy CEO of an international insurer becoming involved. If not I will pass it on to lawyers and our sister company with a clear conscience. Having to go to Sydney is frustrating, costly for both the broker and I as well as being time consuming. All of this would never have occurred with a quality underwriter and claims manager.

The second example comes from late last year. I was asked to provide a day’s training to a broker in central Victoria and at the end of the day, the claims manager for the brokerage asked if she could discuss a few problem claims with me. I agreed as I always do, time permitting. After the 7th claim in a row where I pointed out where in the Policy cover was afforded for the incident, I asked if she had picked the common denominator. She could see no link until I pointed out that all the claims involved the one insurer! On examination it was confirmed what I had already surmised. The brokers had placed cover with this company because they were cheaper but at what cost now to their Insured’s who needed payment desperately for legitimate claims and what of the brand reputation of the broker with so many clients not to mention the additional operating costs and stress in trying to get valid claims paid.

The thing about this particular Insurer, brokers and our staff rate them very highly in Queensland, Western Australia and New Zealand, acceptable in South Australia and at or near the bottom in New South Wales and Victoria. Clearly it is not a company instruction to be difficult or uncompromising but rather either the level of training or the personality of the claims manager in each state/region.

The lesson for an Insured here is to ask your broker to comment on the claims service of the Insurer(s) they are recommending while for brokers, think twice about putting business with a company whose claims service is only going to make your client’s life and your hell.

LMI Claims Services have 8 offices in Australia and New Zealand so that we can help brokers and their clients with claims that fall foul of poor claims departments although we much prefer to be appointed early to get the claim set up correctly from the start.

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