Small Claims Handling clauses (SCHC) are an under-utilised resource, and MGAs should consider their application more often.
A SCHC is often perceived as the policyholder simply dealing with small matters in house; in fact the clauses are at their most effective where the policyholder deals with matters with the assistance of their broker.
The benefits of this situation can only occur where the policyholder has a broker with an experienced claims team, and is offering substantive claims handling as part of its service provision. This is not offered by all brokers and perhaps this underlies why the clauses are not routinely considered as part of an MGA’s underwriting.
The MGA would therefore need to consider its trading partner’s capabilities, and which of their brokers could properly play their part in creating the benefits of small claims handling arrangements.
The benefits can be considerable and therefore this is a worthwhile exercise for an MGA. They include the following.
Cost – the number of claims files opened for the risk is reduced. The MGA/insurer is saved administration and the costs of opening and transacting files.
Reactivity – no matter how hard the parties try, realistically there are delays inherent in having a chain of communicants. It takes time for advice and approvals to go from policyholder to broker to insurer, and back down from insurer to broker to policyholder. The service is more reactive if it is simply the policyholder liaising with the broker, and on this basis, many issues would be dealt with on the same day.
Complaint Handling – it is generally perceived that a complaint can be turned into a positive if it is handled in the right way. In order to do so, the firm has to take ownership of the complaint, and needs to deal with it in a timely way. Delays are fatal to the complainant’s journey through the process, which therefore have a commercial impact on the policyholder. Moreover, final response letters are generally drafted by the policyholder and are often time-consuming exercises. It is frequently the case that investigations and drafting of responses are only finished with the deadline for issuing the response looming. The reality is therefore that some of the recurrent demands for insurer’s approval and pressures suffered by both broker’s and insurer’s claims teams relate to small matters in terms of financial exposure. Nevertheless, minor complaints can occur on the policyholder’s VIP clients, and in any event, they do not want to breach what is set out in their complaints code, which has been communicated to both their regulator and their client. For these reasons, the small matters genuinely are time-sensitive.
Positive Broker Experience – the broker obtains two key benefits from such small claims handling arrangements. The first is that their capacity is increased as their claims handling work is reduced; from their perspective there is only one set of communications on many issues rather than two, and they do not have to spend time chasing for replies where deadlines are an issue. The second is that they are in more regular contact with the policyholder, and develop more positive relationships as multiple parties within the policyholder become used to referring situations to the broker for input and direction. Ultimately it gives opportunity to the broker to demonstrate its capabilities and therefore properly benefit from the resource it has created in developing a substantial and experienced claims team.
Risk Management Information – small claims handling bordereaux are valuable in collating information regarding incidents occurring. Once small claims handling arrangements have been in place for several years, the bordereaux are a resource in detecting patterns or gaps whether that is to the policyholder’s internal risk manager, the broker or the underwriter.
The SMCH situation is therefore beneficial to all the parties. The insurer saves money, the broker is saved work and the policyholder gets more responsive service, particularly in terms of damage control when there is a complaint.
There can be concerns that a SCHC can lead to a loss of claims control. The trigger point for notification outside of the SCHC can substantially mitigate this concern; it does not have to be half of the excess and therefore a sizeable amount if the excess is substantial. It could be set to a few thousand pounds, and regardless of the size of the excess.
There can also be concerns that a SCHC can be used to manipulate situations involving late notification. However, this concern was more real prior to the changes created by the Insurance Act. For cases incepting post-Insurance Act, the breach of policy condition represented by late notification within the policy period and where there has been no prejudice to the insurer, does not go anywhere. SCHC’s require a final bordereau to be submitted before the expiry of the policy, so the SCHC cannot be manipulated to create a notification after the policy has expired (its either on the bordereau or it isn’t).
A key benefit that an MGA offers to its capacity providers is its network of trading partners. The capabilities and reach of the trading parties feeds into the success of the MGA. Claims handling is central to the positive provision of insurance, and through the consideration and application of small claims handling arrangements, MGA’s can explore the sophistication of their broking partners and the quality of their policyholders.