PGI Claims Management 2

Question 1

What is 'alternative dispute resolution' (ADR) and when is it preferred in commercial insurance?

Accepted Answer

Methods such as mediation, negotiation, and arbitration that resolve disputes without formal court proceedings, preferred for speed, cost, and confidentiality

Answer

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?

Accepted 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

Answer

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?

Accepted Answer

Payment made as a goodwill gesture without admission of liability under the policy, often to maintain customer relationships or resolve borderline cases

Answer

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?

Accepted 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

Answer

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?

Accepted 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

Answer

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).

PGI Insurance Practice Test

PGI Insurance Practice Test

PGI Claims Management 2