PGI Claims Management 2 — Questions and Answers
Question 1: What is 'alternative dispute resolution' (ADR) and when is it preferred in commercial insurance?
- A method of resolving disputes through armed conflict
- Methods such as mediation, negotiation, and arbitration that resolve disputes without formal court proceedings, preferred for speed, cost, and confidentiality (Correct answer)
- An alternative form of insurance coverage
- A government-mandated process for all insurance disputes
Correct answer: Methods such as mediation, negotiation, and arbitration that resolve disputes without formal court proceedings, preferred for speed, cost, and confidentiality
ADR includes mediation (facilitated negotiation) and arbitration as alternatives to court litigation. In commercial insurance, ADR is often preferred for its speed, lower cost, confidentiality, and preservation of commercial relationships — particularly relevant for complex reinsurance disputes.
Question 2: What is 'claims frequency' versus 'claims severity' in portfolio monitoring?
- Frequency measures how fast claims are paid; severity measures how slow they are paid
- Frequency is the number of claims per policy or exposure unit; severity is the average cost per claim — both must be monitored to manage portfolio profitability (Correct answer)
- Frequency applies to property claims; severity to liability claims
- Severity is always more important to monitor than frequency
Correct answer: Frequency is the number of claims per policy or exposure unit; severity is the average cost per claim — both must be monitored to manage portfolio profitability
Claims frequency measures how often claims occur. Claims severity measures the average cost of each claim. Both trends must be monitored — rising frequency or severity can signal deterioration in portfolio performance and pricing inadequacy.
Question 3: What is 'ex gratia' payment and when might an insurer use it in claims management?
- Payment made as a legal obligation under the policy
- Payment made as a goodwill gesture without admission of liability under the policy, often to maintain customer relationships or resolve borderline cases (Correct answer)
- Payment made only after court order
- Payment of the full sum insured automatically
Correct answer: Payment made as a goodwill gesture without admission of liability under the policy, often to maintain customer relationships or resolve borderline cases
An ex gratia payment is made by the insurer as a discretionary goodwill gesture where there is no strict legal obligation under the policy terms. It may be used for borderline cases, to maintain valuable commercial relationships, or to avoid costly litigation.
Question 4: What is 'reservation of rights' and why is it important in commercial claims management?
- The insurer's right to reserve premium income
- A letter allowing the insurer to investigate and potentially defend a claim while preserving the right to deny coverage if a coverage issue is confirmed (Correct answer)
- The insured's right to reserve specific claims handlers
- A reservation of future reinsurance capacity
Correct answer: A letter allowing the insurer to investigate and potentially defend a claim while preserving the right to deny coverage if a coverage issue is confirmed
A reservation of rights letter allows the insurer to handle a potentially complex or questionable claim — including defending legal proceedings — without waiving coverage defences. It is essential when coverage questions exist but immediate claim handling is needed.
Question 5: What is 'loss development factor' in actuarial claims reserving?
- The factor by which premiums develop over the policy period
- A multiplier applied to immature claims data to project ultimate losses, accounting for the fact that claims are not fully reported or paid at the time of assessment (Correct answer)
- The factor adjusting for inflation in claims costs
- A discount factor applied to future claim payments
Correct answer: A multiplier applied to immature claims data to project ultimate losses, accounting for the fact that claims are not fully reported or paid at the time of assessment
Loss development factors are derived from historical claims data and applied to current immature claims to project ultimate losses. They account for claims that have been reported but not fully developed (IBNER) and claims not yet reported (IBNR).
Question 6: What is the Singapore Financial Disputes Resolution process hierarchy for large commercial insurance claims?
- All commercial claims must go directly to MAS
- Internal dispute resolution first, then Singapore International Arbitration Centre (SIAC) or Singapore Mediation Centre (SMC) for commercial disputes, and ultimately the courts (Correct answer)
- Commercial disputes bypass FIDReC and go directly to court
- All commercial insurance disputes must be resolved within 30 days
Correct answer: Internal dispute resolution first, then Singapore International Arbitration Centre (SIAC) or Singapore Mediation Centre (SMC) for commercial disputes, and ultimately the courts
For larger commercial insurance disputes, the hierarchy typically involves internal dispute resolution, followed by formal ADR mechanisms such as SIAC arbitration or SMC mediation (more appropriate than FIDReC for commercial-scale claims), and ultimately litigation if unresolved.
PGI Claims Management 2
What is 'alternative dispute resolution' (ADR) and when is it preferred in commercial insurance?