The contract of insurance is the kind of contract whereby the insurer promises the insured to provide indemnification in return of premium in the event of loss. The insurer pays the insured some amount of money in form of a claim to reduce the effect of the loss. Claim is the aspect of insurance which is required to be handled by professionals. If it is not well handled, it may affect the image of the insurance company. Claim serves as a basis for evaluating the financial stability of the insurance company. Therefore, it is the most vital aspect of insurance business. Any insurance company that plays with handling of claim will find it difficult to convince the public that it is in the business of providing protection for them. Nigerians believe that the insurers are always willing to collect premium as well as issuing notice for renewal but they are not willing to settle claims.
DEFINITION OF CLAIM
Claim is a process whereby the principle of indemnity is applied following the notification of occurrence of an event insured against under an insurance policy. It is a means of demanding for a loss to be settled by the insurers.
Upon the occurrence of a loss of an insured event, an average insured expects his or her loss to be settled immediately. But insurance companies do not settle claim just like that. Claim settlement in insurance business involves some steps which include:
- To establish the right of the insured to present a claim under the insurance policy.
- To know whether the cause of the loss is the insured peril (proximate cause).
- To know whether the insured is entitled to claim or not.
The functions stated above are being performed by the claim department of the insurance company. There are some classes of insurance where the insurer makes use of professionals to carry out the function of investigating the cause of the loss and to determine the actual amount of the loss. These professionals are called loss adjusters and they are expected to maintain high professional integrity while handling the claim investigation. If they discover that the insured should not be paid the claim, they are expected to inform the insured why the claim should not be settled.
For example, an independent loss adjuster X was appointed by an insurance company. He is to adjust the claim of a car loss. It is the responsibility of the loss adjuster to request for the estimated claim of the insured and visit the place where the damaged car is parked to confirm the claim of the insured i.e. whether it is true that all reported losses actually occurred. The adjuster will also find out if some of the reported losses are still repairable or totally damaged. He will also find out the market price of the damaged items and compare it to the estimated claim and adjust accordingly. The adjuster will finally advise the insurer on what to do, that is, whether to repair or to replace.
There are certain implied and express duties imposed on the insured legally under insurance policy in the event of an occurrence that is likely to lead to a claim under an insurance contract.
The position of the law regarding loss of subject matter of the insurance due to an insured peril is that the insured should have handled the insured event as if it was uninsured. This is done by not making it difficult or obstruct the activities of the fire brigade, police or other government authorities in minimizing the loss.
The insured is expected to give immediate written notice of any event to the insurer. These are clearly stated in the policy document of an insurance policy contract.
Notification should be given within 30 days in writing, giving the full details of the property affected and the amount of damage done, together with the detail of any other insurance on the property. In order for the insurance company to carry out its full investigation, it is important that they are notified on time.
DUTIES OF THE INSURED
- The insured should notify the insurer of any loss following the occurrence of the events insured against.
- To forward all full particulars of loss within the stipulated period specified under the conditions of the contract which ranges from 7 days to 30 days, depending on the class of insurance and the type of loss.
- To notify the police following the theft of subject matter of the insurance.
- To prevent further loss of subject matter of insurance.
- To co-operate with the insurer on the area where another person is responsible for the loss so that the insurer can exercise their subrogation right.
- To allow representatives of the insurer such as claim officials and loss adjusters have access to the damaged properties.
DUTIES OF THE INSURER
- The insurer shall always be transparent and honest in all his business dealings.
- The insurer shall faithfully honour the rights of the insured in as much as the insured has discharged his obligations under the contract.
- The insurer shall not unreasonably reject a claim and if at all a claim is rejected, the insurer shall promptly notify the insured.
- The insurer shall carryout his investigation in a classified manner and shall settle all any admitted claims promptly.
DUTIES OF LOSS ADJUSTERS
- They examine, investigate, adjust and make recommendations as to the quantum of claims to insurer.
- They carry out pre-loss/post-loss survey, and make recommendations for risk improvement/ prevention.
- They also determine whether the loss reported is covered under the terms and conditions of the policy, and whether there is breach of warranty which is fundamental to the loss.
- They also give advice on measures/features that can minimize loss in future.
- They act as cargo surveyor / superintending agent in relation to claims e.g. Marine loss.
Claim form is the form sent to the insured by the insurer, requesting the information on the causes of the loss to the subject matter of insurance and the circumstance surrounding the causes, as well as the particulars of the insured and insured properties. This will enable the insurer to have the information that is necessary for the assessment of the loss. The claim form is drafted to contain questions relating to the loss which are to be answered by the insured. The questions include:
- The name of the insured.
- The place of the loss.
- The time of the loss.
- The address of the property.
- The description of the property damaged.
- The value of the property damaged at the time of the loss.
- The police station where the loss was reported.
- The particulars of the insurer covering the same subject matter.
The information given on the claim form is checked by the insurer against the information given by the insured at the inception of the contract. Where there is discrepancy (breaching the principle of utmost good faith) the insurer might use that opportunity to avoid liability.
PROOF OF LOSS
It is the responsibility of the insured to prove to the insurer beyond reasonable doubt that he actually suffered a financial loss following the loss or damage of the subject matter of the insurance. It is the duty of the insured to supply to the insurer the financial worth of the loss.
INVESTIGATION OF CLAIM
On receipt of the notice of the loss, the claim department of the insurance company is to carry out an investigation to establish the causes and the amount of the loss based on terms and conditions of the contract in arriving at final decision for the settlement of the claim. In fact, since the insurer is holding the policy fund on behalf of all policy holders, any payment must be justified.
This will require a careful investigation about the loss. In some cases, the investigations are carried out on behalf of the insurer by an independent loss assessor and loss adjuster. For example, in motor insurance accident claim, the insurer appoints an independent mechanical engineer to inspect the extent of damage done to the insured vehicle by comparing his information with the estimate of repair submitted by the insured to the insurer.
Insurance claims involving other classes of insurance such as fire, burglary, and engineering are investigated by loss adjusters. The duty of the loss adjuster is to ascertain the cause(s) of the loss and whether the cause is the peril insured against in the policy. The loss adjuster also investigates the actual value of the property at the time of loss to determine whether there is under-insurance or not. The loss adjuster will advise the insurance company on how to settle the claim in this recommendation after he must have carried out his investigation.
If the right of subrogation arises in respect of the loss, the adjuster will give the insurer necessary information and details to enable it to take appropriate steps to proceed against the third party. The insured in some situations will usually be required to sign a declaration transferring his right to the insurer so that the insurer can go ahead and claim from the third party.
SETTLEMENT OF CLAIMS
Once a claim is discovered to be valid, payment must be made immediately. That is, where all information obtained and investigation carried out by claim department or loss adjuster reveal that there is a liability on the insurer, the insured should be indemnified with immediate effect. Any delay in payment of a claim to the insured might lead to loss of goodwill and possible future loss of the insurance company. Prompt claims settlement serves as good advertisement and good image of the insurance company. Settlement of claim is either made by cash, replacement, repair or reinstatement. However if a claim is not admitted, the insurer has to inform the insured on time instead of unnecessary delay which might have negative effect on the integrity of such insurer.
MOTOR INSURANCE CLAIM
Insurance claim under this class of insurance are divided into:
- Motor accident claim.
- Motor theft claim.
A) MOTOR ACCIDENT CLAIM
After the insurer has received the notification of the accident from the insured, the insurance checks it records and ensures that there is a cover, that is, that the policy covers the event which is subject to the claim. Where the evidence of the liability is ascertained, the insurer opens a claim file and the form is sent to the insured for completion. The form is to be returned with supporting documents like estimate of repairs obtained from the garage of the insured choice. After the insured must have completed the claim form, he returns it to the insurer and the insurer continues with the investigation of the claim.
The insurer then checks and confirms if some of the following are true:
- The insured name with the claimant name.
- The situation of loss is as described in the policy.
- The insured loss if it is as described in the policy.
- The peril causing the loss is a peril insured against.
- The policy is in force at the time of the loss.
After all these have been done by the insurer, he sent his assessor or consulting engineer to inspect the exact damage done to the vehicle at the workshop and with estimation of repairs and any damage done that is not associated with the accident will be removed from the repairs. On receipt of the repair estimate through the comprehensive report submitted by the consulting engineer, it will be carefully perused by the claim official and if found to be in order, an approval is given to the garage to repair.
On completion of the repair and having been satisfied with the work, the insured signs a satisfactory note which is sent to the insurer with the final repair bill. On the receipt of this by the insurer, the cheque for the repair is raised and signed by the head of claim department which is forwarded to the accounts department in anticipation for the cheque to be drawn in the name of the repairer. But where there is evidence that the repair bill has been settled by the insured, the cheque is raised on the name of the insured.
In a situation where the claim is a total loss, (i.e. the vehicle is written off), most insured option to have the scrap of the vehicle. A salvage value recommended by the engineer is deducted from the adjusted claim amount and the balance is paid to the insured. But if the insured decides to get full indemnity, he abandons the scrap to the insurer and the insured is issued with a discharge voucher for the amount calculated by the claim department. After signing the voucher, the insured is paid his full indemnity; the salvage becomes the property of the insurer.
B) MOTOR THEFT CLAIM
This form of insurance claim takes longer period to be settled in order to ascertain that the vehicle has been stolen truly and efforts made by security agencies to recover the stolen vehicle proved abortive. Once there is theft incident, the insured is expected to report to the police immediately.
After the incident has been reported to the police, the insured will forward a written report to the insurer within a stipulated time as it may contain in the policy. On receiving the report, the insurer will issue a claim form to the insured for completion, after which the insurer will proceed with the investigation of the claim.
The insurer needs to do thorough investigation to confirm whether there is actually a theft case or not. There have been some incidents of theft where people insured non-existing vehicles with the purpose of making claim from the insurer.
The insured is therefore expected to provide the following documents in addition to the completed motor theft claim form to process his motor theft claim:
- The Police report (Preliminary).
- The Purchase Invoice.
- Original Purchase Receipt.
- Delivery note.
- Registration book.
- The vehicle licence (current).
- Current insurance certificate.
- The ignition key.
The final police report is normally issued within a reasonable space of time (say some week) after the preliminary report. This is to give room for the police to carry out proper investigation as regard the stolen vehicle. If there is no clear sign that the vehicle will be recovered (from the police final report) and the insurer is satisfied that the claim is valid, it prepares the settlement offer. But if after the insured has been given full indemnity and the insured vehicle was later found, the vehicle becomes the property of the insurer. If the vehicle is found before the payment is made to the insured but damaged, it would be treated as an accident case.
OTHER PROPERTY INSURANCE CLAIMS
These include claims on fire, burglary, goods in transit, etc. After the insured has sent notification of loss to the insurer, the insurer will then send a loss adjuster to investigate and adjust the claim. The claim form is provided for the insured to complete and return with documents concerning his claim. At the end of his investigation, the loss adjuster will issue his recommendation to the insurer which will include amount payable to the insured, that is if liability is admitted and if not, he gives reason for the rejection of the claim in his report.
This is the amount to be given to the insured by the insurer after having admitted liability upon the completion of investigation of the claim presented by the insured by the claim officials and with the help of external assessors (consulting engineers and loss adjusters). Amount payable to the insured varies with different classes of insurance as discussed below:
A) Life and personal accident insurance: The amount payable under this form of insurance policy will depend on the type of loss sustained which would have been clearly stated in the policy document. Under life assurance policy, if the sum assured is N1,000,000 payable on the death of life assured, the amount payable is N1,000,000. But the beneficiaries are expected to present the death certificates of the life insured.
Under personal accident insurance: where the policy allows for weekly benefit payable for temporary, partial or total disablement, it is the responsibility of the insured to prove the following:
- He/she is partially or totally disabled as defined in the policy.
- That the partial or total disablement is caused by an event insured against.
- He must also present medical evidence for the benefits to be paid.
B) Property insurance policy: The amount payable on property insurance claims will be determined whether the contract is written under the following bases:
- Indemnity basis.
- Reinstatement basis.
- Valued basis.
Insurance policies are less than full amount due to inadequate arrangement of policy cover as a result of these factors:
- The exhaustion of the sum insured.
- The excessive franchise applicable.
- The limit (4%) of the sum insured per article.
- The operation of average due to under insurance.
OPERATION OF AVERAGE
The term “average” has two meanings in insurance depending on whether one is dealing with marine insurance or non-marine insurance contract.
A) Marine Insurance: Under marine insurance, the word average means “partial loss” and it is dealt either as particular average or general average.
- Particular average: This is partial loss that has to do with one particular interest. For instance, a hull or a particular consignment of cargo.
- General average: This is a situation where cargoes are offloaded into the high seas to safeguard the ship when facing challenges that could result to total loss. In order to safeguard the ship, it may be necessary to intentionally insure a loss. The loss is shared by all interested parties which include the owner of cargoes thrown into the sea.
B) Non-marine insurance (Property Insurance): The use of average in non-insurance denotes under-insurance. In any policy where there is average clause, the insured will or may become insurer for the proportion under insured and share-in contribution. There are three types of average that can be found in any non-marine property insurance policies. They are:
- Pro-Rata condition of Average.
- Special condition of Average.
- The two-condition of Average.
1) Pro-Rata condition of Average: These conditions are mostly applicable to almost all fire and theft policies. In order to combat the effect of under-insurance, policies subject to pro-rata condition will only pay such proportion of the loss as the sum insured bear, to the value at risk.
Assuming that the sum insured of the property insured under fire insurance policy is N500,000. At the time of loss the subject matter of insurance is valued at N800,000. If the loss of N200,000 is sustained, what is the insurer liability?
Sum Insured = N500,000
Value of the risk at time of loss = N800,000
Amount of loss = N200,000
Insurer liability = N500,000/N800,000 × N200,000
The insurer’s liability is N125,000 while the insured bear the balance of N75,000 for under-insuring the property insured.
2) Special condition of Average: This condition is usually applied to agricultural produce. The condition operates if the sum insured is less than 75% of the value of the property. If the sum insured is more than 75% of the value at risk, then the insured will recover the full amount of the loss from the insurer. But if the sum insured is less than the 75% of the value of the subject matter of insurance at the time of loss, pro-rata condition of average is applied.
If the sum insured is N200,000 and the value of the subject matter at the time of loss is N300,000. If the loss of N60,000 occurs, what will be the insurer’s liability?
Sum insured = N200,000
Value at time of loss = N300,000
Amount of loss = N50,000
Since the proportion of the sum insured to the value of the subject matter at the time of loss is less than 75%, the insurer liability will be calculated using pro-rata condition of average.
The insured bears the balance of N20,000. But if the sum insured is N200,000 and the value of the subject matter at the amount of loss is N250,000 the insurer’s liability is
Since the proportion of the sum insured to the value of the subject matter at the time of loss is more than 75% therefore the insurer bears the whole loss (N250,000) without any contribution from the insured.
3) The two-condition of average: This form of average is applicable in situations involving the provision of more than one insurance policy for mercantile risk which is located at different places. They are arranged in two parts with the first part representing the ordinary pro-data average while the second is called the contribution clause or double average which cannot be used alone except in conjunction with the first condition. The essence of this clause is to determine the method to be applied when insurance policies are effected for similar goods located at different places. They are called to contribute to the loss with the balance of the loss that could not be met by the specific policy. The floating policy i.e. an insurance covering property in two or more separate risks will be brought into contribution if the specific cover is exhausted by the loss, which implies that the policy of the lesser range must contribute before the policy of the greater range. An insurance covering goods in warehouses in Lagos and Ibadan is of greater range than an issuance covering goods in warehouse in Lagos alone.
There are two insurance policies effected for the same type of goods at different locations. Policy X covered goods stored at the warehouse in Lagos while policy Y covered goods at the warehouses in Lagos and Abuja.
Assuming the following information is given to establish the contribution of the two policies with both subject and average:
Policy X (Warehouse in Lagos) = N100,000
Policy Y (Warehouses in Lagos and Abuja) = N300,000
Loss sustained at Lagos warehouse = N30,000
The values at the time of loss are:
- Lagos = N100,000.
- Lagos and Abuja = 400,000.
What is the liability of policy X and Y?
Policy X pays N30,000 and does not require any contribution from policy Y because policy X is sufficient to provide the total financial compensation to the insured.
If the following information were given to calculate contribution of policy X and Y both subject to average with policy X and policy Y providing for same type of goods located at different places.
Policy X (Lagos) = N600,000
Policy Y (Lagos and Abuja)= N800,000
Loss sustained in Lagos = N250,000
and the value of the property at the time of loss.
- Lagos = N700,000
- Lagos and Abuja = N1,000,000
Policy X covering goods in Lagos alone bears the sum of N214,300, leaving the balance of N35,700 to be provided by policy Y covering both Lagos and Abuja.
Assuming sum insured by policy X = N60,000
And that of Y (sum insured) = N80,000 and loss in Abuja = N30,000.
If the value of the property at the time of loss in Lagos is N50,000 and that of Abuja is N100,000.
The contribution is calculated thus:
Policy X does not cover Abuja, therefore policy Y only contributes to the loss subject to average.
Ex-gratia payment is a form of payment made to the insured but not that the insured is legally entitled to it as a claim under insurance policy but it was given to him out of kindness. It is paid as an act of grace only and must not be construed as a precedent for similar action on a future occasion. There are times where policy holders have no legal right to claim from your insurer because the event causing loss of the property are outside the scope of the policy. Claims are often paid in this way to avoid hardship to the insured. This will create good rapport between the insured and the insurer and can boost the image and reputation of the insurer. Such payment is made in part or full.
WHO RECEIVES CLAIM PAYMENT FROM INSURER
- The insured.
- The third party and solicitor under liability insurance policies.
- The garage in respect of accident vehicle but if there is evidence of payment by the insured, the payment is made directly to the insured.
- The beneficiaries in respect of death claim.
- The purchaser of a building under the purchaser’s interest clause of the standard fire insurance policy.