PGI Claims Management 1 — Questions and Answers
Question 1: What is 'large loss management' in commercial insurance claims?
- Managing claims only above S$1 million
- A structured approach to handling significant claims involving early notification, dedicated claims handlers, expert appointments, and proactive communication (Correct answer)
- Automatically referring large claims to MAS
- Delegating all large claims to reinsurers
Correct answer: A structured approach to handling significant claims involving early notification, dedicated claims handlers, expert appointments, and proactive communication
Large loss management involves a structured protocol for significant claims: immediate notification up the chain, appointment of dedicated claims professionals, early engagement of forensic accountants or adjusters, proactive communication, and coordination with reinsurers.
Question 2: What is the role of a 'forensic accountant' in major commercial insurance claims?
- An accountant who investigates criminal fraud exclusively
- A specialist appointed to quantify business interruption losses, verify financial records, and calculate complex financial aspects of commercial claims (Correct answer)
- An accountant who audits the insurer's financial statements
- A government official verifying insurance reserve adequacy
Correct answer: A specialist appointed to quantify business interruption losses, verify financial records, and calculate complex financial aspects of commercial claims
Forensic accountants are appointed in complex commercial claims to independently assess and quantify financial losses — particularly business interruption claims — examining financial records, projecting lost profits, and verifying claimed amounts.
Question 3: What is 'claims leakage' in insurance claims management?
- Water damage claims arising from pipe leaks
- Overpayment of claims due to poor processes, fraud, inadequate reserving, or failures in claims handling, representing value lost from the claims fund (Correct answer)
- Claims payments made by mistake to wrong parties
- Claims that are not reported promptly
Correct answer: Overpayment of claims due to poor processes, fraud, inadequate reserving, or failures in claims handling, representing value lost from the claims fund
Claims leakage is the difference between what was actually paid and what should have been paid — resulting from overpayment, fraud, inadequate controls, poor reserving, or process failures. Reducing leakage improves profitability without raising premiums.
Question 4: What is 'incurred but not reported' (IBNR) reserves and why are they important?
- Reserves for reported claims not yet paid
- Reserves set aside for losses that have already occurred but not yet been reported to the insurer — essential for accurate financial reporting (Correct answer)
- Reserves for cancelled policies
- Reserves for future premium income
Correct answer: Reserves set aside for losses that have already occurred but not yet been reported to the insurer — essential for accurate financial reporting
IBNR reserves account for losses that have already happened but have not yet been reported to the insurer. Without adequate IBNR reserves, an insurer's financial statements will understate liabilities, potentially threatening solvency.
Question 5: What is 'subrogation recovery management' and why is it important for insurers?
- Managing the process of transferring policies to new policyholders
- Actively pursuing recovery from third parties responsible for losses after paying claims, to reduce the net cost of claims (Correct answer)
- Managing the insurer's subscription to reinsurance markets
- Recovering unpaid premiums from policyholders
Correct answer: Actively pursuing recovery from third parties responsible for losses after paying claims, to reduce the net cost of claims
Subrogation recovery management involves proactively identifying opportunities to recover claim payments from responsible third parties, pursuing legal action where justified, and managing the recovery process to maximize returns and reduce the net cost of claims.
Question 6: What is the purpose of 'claims audits' in insurance company governance?
- To audit premium payment records
- To independently assess the adequacy, consistency, and accuracy of claims handling processes, reserves, and payments against policy terms and best practice (Correct answer)
- To audit the insurer's investment portfolio
- To audit agent commission payments
Correct answer: To independently assess the adequacy, consistency, and accuracy of claims handling processes, reserves, and payments against policy terms and best practice
Claims audits independently review the insurer's claims handling processes, checking that claims are assessed correctly against policy terms, reserves are adequate, payments are accurate, and handling meets regulatory and best practice standards.
PGI Claims Management 1
What is 'large loss management' in commercial insurance claims?