CLAIM & ANNUITY BENEFIT ADMINISTRATION

The Life Insurance Claim Administration Function

The process of determining the company’s liability for each claim is usually referred to as claim administration, claim adjudication, claim handling, claim processing, or claim servicing.

Claim Philosophy

Is a statement of the principles the insurer will follow when conducting claim administration. It helps ensure that claims are handled promptly, fairly & courteously.

When developing a philosophy, some insurers adopt part or all of the “Statement of principles” of the International Claim Association (ICA), association of life and health insurance companies whose purpose is to promote efficiency, effectiveness, and high standards of performance in claim administration.

Claim Staff

A claim analyst, also called a claim examiner, claim adjuster, claim specialist, or claim approver, is an insurance company employee who is trained to review individual claims and determine the company’s liability under each claim.

A claimant is a person who submits a life insurance policy claim to the insurance company.

Regulation of Claim Administration

Unfair Claims Settlement Practices Act specifies a number of actions that are considered unfair claim practices if committed by an insurer transacting business in the state [1] in conscious disregard of the law or [2] so frequently as to indicate a general business practice.

Life Insurance Claim Decision Process

Identifying the validity of the claim involves answering questions like

• Was the policy in force when the loss was incurred?
• Was the insured covered by the policy at the time of the loss?
• Has the loss insured against occurred?
• Is the loss covered by the policy?
• Is the claim contestable?

The process of life insurance claim administration typically begins when the claimant or the producer who sold the policy forms informs the insurance company of the insured’s death. The insurer then provides the claimant with a life insurance’s claimant’s statement, also called a claim form, in which the claimant supplies required information about the deceased insured, including the date, place, cause & circumstances of death. The statement typically requires the claimant to provide the following types of information:

• The names of all physicians who were consulted for any condition related to the cause of death.
• Information about the deceased insured’s hospital confinements within the previous five years.
• The signature of the claimant or an authorized representative of the claimant on a section of the claimant’s statement- known as an authorization to release information-that authorizes the insurer to  obtain claim-specific information from medical caregivers and institutions.

Verification of Policy Status

Upon receipt of the claimant’s statement, the claim analyst verifies that the policy under which the claim was filed was in force when the insured died. Verification is usually a problem only when the death occurred near the date that the insurance coverage began or near the date that the insurance policy lapsed or was surrendered.

Verification of Coverage of the Insured

The claim analyst verifies that the deceased person was covered under the policy. If the deceased was not insured, then the claim analyst denies the claim. This step helps protect the insurance company from paying invalid claims that have been filed by mistake or for fraudulent reasons.

Verification of the Loss

For a life insurance claim, the claimant must supply proof of loss i.e. a death certificate (most common), an attending physician’s statement, a coroner’s or hospital’s certificate of death. Although verifying proof of loss is routine in most cases, a small percentage pf claims require the claim analyst to conduct further investigation when the insured

• Dies outside the country.

• Because the formalities and procedures for registration of death in some countries are not as rigorous as life insurers might desire, situations in which the desired dies abroad often increase the likelihood of fraud.
• Disappears.
• Explainable Disappearance If the insured disappeared as a result of a specific peril that can reasonably account for the disappearance, the insured may be presumed dead. An example of this circumstance is that the insured was on board an airplane that crashed into the ocean, and no bodies were recovered.
• Unexplainable Disappearance The insurance company usually denies a life insurance claim that is filed immediately after the disappearance.

Verification of Policy Coverage of the Loss

The claim analyst next determines whether the loss was covered by the policy. This step may take place before the claim analyst verifies that the loss occurred. If the insured’s death occurred as a result of an excluded activity, occupation, avocation, or condition, the claim analyst denies the claim.

Handling Contestable Claims

A contestable claim is a claim that arises when an insured dies during the policy’s contestable period usually two years. A material misrepresentation is a statement made in an application for insurance that is not true and that is relevant to the insurer’s evaluation of the risk presented by the proposed insured.

Upon receipt of a contestable claim, a claim analyst investigates the possibility that the application for the policy contains a material misrepresentation. If the material representation is discovered, the law allows the insurer to rescind the policy under certain circumstances. A rescission is the legal process under which an insurer seeks to have the insurance contract declared void from the beginning because of a material mispresentation in the application.

Making a Claim Decision

Approving the Claim

• Calculating the amount of the policy benefit payable.
• Determining the person or entity entitled to receive the benefit.
• Determining how to distribute the proceeds & paying the claim.

o   If the policy proceeds are to be left on deposit with the insurer, the claim analysts sends the beneficiary a statement of indebtedness, which specifies a minimum interest rate that the insurer will pay on the proceeds and the frequency with which the insurer will make interest payments to the beneficiary.

Denying the Claim

They deny the claim in the following situations:

• The policy was not in force when the insured died
• The deceased person was not covered under the policy.
• The claimant could not furnish an acceptable proof of loss.
• The cause of death was excluded from coverage.
• The insured died during the contestable period and the application for insurance contained a material misrepresentation.

Life Insurance Claim Investigation

The process of obtaining additional information to make a claim decision is known as claim investigation.

The following factors often influence the extent of a claim investigation:

• The circumstances of the death.
• The amount & type of information already available.
• The age of the insured.
• The place where the loss occurred.
• The length of time policy was in force.
• Policy Provision.
• The face amount of the policy.

Claim Fraud

Any person who is in a position to influence a claim decision or benefit from an approved claim can commit claim fraud. In the US, most states require insurers to report cases of alleged fraud to the SID for further investigation & prosecution.

Claims on Reinsured Policies

When a ceding company approves a life insurance claim, the company pays the full amount of the policy proceeds to the beneficiary and then requests reimbursement from the reinsurer for the amount of risk that was reinsured. Because reinsurers have a keen interest in which claims are approved and the amounts payable, a reinsurer’s claim staff typically maintains close contact with claim analysts of the ceding companies whose risks they assume.

Administration of Annuity Policy Benefits

Annuity Death Benefit Administration

For most deferred annuities, if the policy owner dies before the annuity enters the payout period, the insurer is obligated to pay a death benefit to the beneficiary designated by the policy owner.

Authenticating & documenting the claim To administer an annuity death benefit, insurers require certain documentation, including an official death certificate, a claimant’s statement, and an official record of the beneficiary’s tax identification number. A claimant’s statement for an annuity identifies

            [1] The deceased policy owner.

            [2] All policies for which the death benefit is claimed.

[3] The manner in which the policy owner or beneficiary wants the benefit paid.

Annuity payout Administration

The payout administration team is responsible for preparing annuities for payout and for overseeing scheduled periodic payments. The team provides information about payout options to the policy owner and documents the policy owner’s choice of payout option.