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FSI404 Ass Eng B02 - Claims Handling
Master ID 260424 - Nicolas Tapia
Question 1
15 Marks
a) Duty of disclosure is an obligation set by the Insurance Contracts Act which outlines the
Insured's legal responsibility to fully disclose to the insurer all material facts and information
about a risk or a claim that a reasonable person would be expected to consider as being
relevant. This is necessary because if the Insured were to do otherwise, this may allow the
insurer to either deny a claim in full, or to reduce a claim by the amount that the
misrepresentation (or non-disclosure) represents, had it been disclosed at the time of
entering into the contract.
b) When completing a claim form, the following points describe the insured's duty of
disclosure:
The information given is true and faithful account of the event
The values shown do not include any profit
The policy conditions have been complied with
The Insured has not caused the loss nor sought to unjustly benefit from it
c) The following type of information does not need to be disclosed by the insured to the
insurer:
Anything that reduces the risk
Information that is common knowledge
Information that the insurer knows, or could reasonably be expected to know

Question 2
15 Marks
a) `Reinstatement of the sum insured' following a claim settlement usually means that the
Insured may need to pay an additional premium to return the sum insured to its full level
after a claim has reduced it. In the case of a total loss, usually the whole premium must be
paid again, but this is dependent on the clauses applicable to the policy wording.
b) The impact of a partial loss payment on a Marine Insurance class of business is minor, as a
partial loss payment does not reduce the subsequent amount of cover for Marine Insurance
claims. If the insured lodges a succession of partial loss claims, or alternatively, a partial and
then a total loss claim that are both successful, this would mean the Marine Insurance
business class could exceed the sum insured for a policy period.
c) As there is no cumulative limit for all claims in the course of a year for Public Liability
policies, the impact of a partial loss payment on a Public Liability class of business is minor,
especially as most Public Liability policies are on a per accident or per occurrence basis. This
means that the limit represents the maximum that can be claimed for any one accident
occurrence.
d) The impact of a partial loss payment on a Motor Vehicle class of business is minor, as a
partial loss payment does not reduce the subsequent amount of cover for motor insurance
claims if made in the same year.

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FSI402 Ass Eng B02 - Insurance Law & Regulation
Master ID 260424 - Nicolas Tapia
Question 3
10 Marks
The policy schedule is important when handling a claim, because it notes the specific and exact
details of the contract between the Insured and the insurance company. The schedule includes, but
is not limited to:
-
The premium, policy type (class of insurance) and policy reference number
-
The details of the policy holder and risk address
-
Start and expiration date of the policy
-
Details of the risks covered including description of the risk and agreed sums Insured
-
Applicable excesses and special endorsements

As the policy schedule is a legally binding document, the claims handler will assess the claim within
the limits and cover restrictions applied on the schedule.

Question 4
10 Marks
a) The Claim Reserve/Estimate should reflect any cost that may be required to be paid as part
of the claim, or how much the claim will cost to bring it to finality, including amounts that
may be required for the claim settlement, external assessor's fees and also taking applicable
excesses into consideration. It is usually set based on personal experience with similar
claims, bulk estimates generated by computer systems, or from examining the extent of the
loss or damage from supporting documentation and comparing it to the benefits provided
by the policy and associated limits.
b) The Claim Reserve is important as it reflects the Insurance company's financial position.
Inaccurate reserving standards can also affect loss trends/statistics and calculations of
premium at renewal time.

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FSI404 Ass Eng B02 - Claims Handling
Master ID 260424 - Nicolas Tapia
Question 5
10 Marks
a) 1. The Insurance Contracts Act 1984 (Cwlth) - the Act sets the standard for fair operation of
insurance contracts in Australia. It imposes, on both insurers and their customers, three
main obligations in relation to claims:
- Duty of utmost good faith
- Duty of disclosure
- Standard cover provisions
Specifically, sections 21 and 22 - Duty of Disclosure and section 28 - Remedies for non-
disclosure and misrepresentation require the insured to disclose all relevant information
about the risk to the Insurer. Should the Insured not comply with this requirement and it
comes to light during a claim investigation it could result in the claim not being paid and the
policy being cancelled. The Insurance Contracts Act section 56 - Fraudulent claims and
section 60 - Cancellation of general insurance contracts states if a fraudulent claim is made
by the Insured the insurer can refuse to pay the full amount of a claim and can also cancel
the policy from the date of offence without refunding the premium.

2. The Privacy Act 1988 (Cwlth) - The Privacy Act sets out how the Insurer collects, uses, and
discloses personal information. In relation to handling claims, information may only be
gathered by lawful and fair means and only if it is relevant to the claim. If data is not
collected or utilised in the correct way it can be excluded from the claim. The Insured is
entitled to know where the information was obtained and correct any inaccuracies.
Information collected must be in line with the national privacy principles; Collection, Use and
disclosure, Data Quality, Data security, Openness, Access and correction, Identifiers,
Anonymity, Transborder Data Flows and Sensitive Information.

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FSI402 Ass Eng B02 - Insurance Law & Regulation
Master ID 260424 - Nicolas Tapia
Question 6
15 Marks
The following are the three main types of recovery opportunities following a claim:

1. Subrogation
When an insurer indemnifies an insured in respect of a loss, the insurer is entitled to stand in the
shoes of the insured and to receive the benefit of all rights and remedies which the insured may
have against any third party in respect of a loss.
Example:
John (stranger) drives into Mary's insured car and damages it as a result. Mary has
comprehensive motor vehicle insurance cover for her car and claims the damage under her policy
against her Insurance company, XY Insurance. XY Insurance pays in full to have Mary's car repaired.
XY Insurance then sues John for negligence to recover some or all of the sums paid out to Mary. XY
Insurance receives the full amount of any amounts recovered in the action against John up to the
amount which XY Insurance indemnified Mary. Mary retains none of the proceeds of the action
against John, except to the extent that they exceed the amount that XY Insurance paid to Mary.

2. Contribution
The right of contribution applies when two or more insurers are liable under separate contract of
general insurance to the same insured in respect of the same loss.
Example:
An employee of XY Builders is injured in a motor vehicle accident during the course
of his employment, which was caused by the negligent driving of a fellow employee. XY Builders is
vicariously liable for the negligent employee's driving. It is covered under XY Builders compulsory
third party motor vehicle insurance, and also under a common law extension to XY Builders' workers
compensation policy. The workers compensation insurer will pay the claim and then seek
contribution from the compulsory third party motor vehicle insurer.

3. Reinsurance
Reinsurance, usually classed as either treaty or facultative reinsurance, is a private arrangement
between an insurer and its reinsurer. The insured is not party to the contract. After a payment is
made to the claimant, the insurer will try to recover a portion of the payment from the reinsurer by
issuing them with a debit note for its proportion of the payment. By passing some risk to a
reinsurance company (reinsurer), this will reduce the insurer's exposure to risk. The amount of risk
passed on depends on the type of reinsurance arranged.

Example:
An insurer sells one thousand policies, each with a $1 million policy limit.
Theoretically, the insurer could lose $1 million on each policy - totaling up to $1 billion, a level of
exposure which they may not have sufficient capital to retain. As such, they may arrange
proportional reinsurance with a reinsurance company in order to reduce their exposure to loss. If
they were to organize a 50% quota share treaty, this would mean that the insurer would share half
of all premium and losses with the reinsurer.

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FSI404 Ass Eng B02 - Claims Handling
Master ID 260424 - Nicolas Tapia
Case Study - Question 1
25 Marks
As a claims officer, I could not adopt a position regarding liability for the loss, as at this point I am
unable to accurately conclude if liability will be awarded or not, as I do not have enough information
to assess the claim. I would require the following information to proceed, to ensure that the claim
assessment is made without prejudice:
- Who was driving the vehicle at the time of the accident?
- Who was the at fault driver?
- Where did the accident occur?
- How did the accident occur?
- Was our driver operating the vehicle under the influence of alcohol or drugs?
- Would we have accepted the risk had the insured advised us of the modifications to the
vehicle?
- Are the modifications RTA compliant?
- Was the insured aware the modifications were not standard issue when he purchased the
vehicle second hand?
- Is the policy premium paid and up to date?

I would proceed with the following when processing this claim:

- Notify the client that claim has been received. Advise the client of the excess, timeframes and
documents required
- Review Insured's proposal form
- Obtain Underwriting guidelines to confirm if non-disclosure regarding the modifications will have
any impact on this claim
- Await/obtain relevant documentation:
Policy schedule
Notes from Assessor
Police Report
Confirmation that vehicle registration is currently valid
Driving history record

- Check policy wording / PDS:
For exclusions that may relate to the situation the Insured's vehicle was involved in at the
time of the accident
To confirm policy conditions have been complied with
- Complete claim assessment within 10 days
- Notify Insured of claim outcome:
If claim is declined, send notification in writing with reasons for the decline and information
regarding the dispute process should the Insured wish to disagree with the claim outcome
If claim is accepted, advise the Insured or intermediary, proceed with negotiation with the
insured or intermediary and then settle the claim at the agreed value by cash, replacement,
repair or re-instatement.
- Close the file

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FSI402 Ass Eng B02 - Insurance Law & Regulation
Master ID 260424 - Nicolas Tapia
The following are legislative considerations or impacts:

1. Code of Practice, Section 3.5 - If declining a claim, the insured must be provided with the
details for the insurer's dispute resolution procedure and also advise the reason for the
denial of claim, with the exception of disclosing confidential information provided by a third
party, or information that may prejudice the Insurer during further investigation or the
dispute resolution process.
2. The Insurance Contracts Act 1984, Sections 65-68 - In regards to subrogation: As the Insurer,
we may not be able to pursue a recovery against an at fault driver if the negligent third party
is a member of the Insured's family, or a friend of the insured.


Total 100 marks

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