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Insurance market conduct: Claims handling is biggest problem p3

We are still talking about a recent analysis of insurance companies' market conduct reports. The researchers looked at property and casualty companies and life and health insurers to identify the areas that regulators most often cited as problematic.

Toward the bottom of the Top 10 list for property and casualty insurers are two items that consumers will find very interesting: failure to pay the correct amount dictated by policy terms and improper documentation of claim files.

Insurance companies have two primary duties to their policyholders: the duty to indemnify and the duty to defend. The duty to indemnify refers to the insurance company's obligation to pay claims for losses covered by the policy. Companies that do not meet this obligation may actually be acting in bad faith, and companies can pay dearly for that mistake. (The duty to defend, as we have discussed, obligates the insurer to defend a third-party claim against its insured.)

The failure to pay the correct amount under a policy, then, is a breach of the insurer's duty to indemnify. What regulators are doing in these market conduct examinations is identifying process problems that put both the consumer and the insurance company at risk. The failure to indemnify appropriately can not only lead to consumer complaints, claims appeals and even lawsuits, but it can result in fines for an insurer that consistently falls short of its obligation.

One reason these payments may be incorrect could be that insurance companies are not managing their claim files properly. A complete claim file would include information about the insured's coverage limits and documentation about the insured's loss. Investigation reports and appraisals and adjuster reports all could be included in those files in order to calculate the correct payout.

The Top Ten list wraps up with improper documentation in files as an area of concern for regulators. Some insurance industry professionals believe that documentation is the most important part of an insurance company's claims process. This list, though, is not ranked in order of importance. That's something to look forward to, perhaps, in the future.

Source: Insurance News Net, "Consumer Criticism No. 1: Failure To Pay Claims Properly," Sept. 27, 2012

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