Page 19 - Risk Management in current scenario

out the fraud cases against checking the information given at various
places along with the experience of the underwriters. However, all the
fraud cases are not getting caught leaving insurance companies paying
more than expected claims. However, at the time of the claims, insurance
companies also do claim management to find out fraud claims.
Claim management

At the time of a claim insurance company verify the information given in
the claim form against the proposal form given at the time of taking
policy. At this point, if some of the information does not match, it triggers
an investigation and false claims are denied the claims. However, claim
repudiation is a talking point in the galleries of the insurance industry
that which are genuine claims and which are the fraud cases.

The regulator on the other hand always advocates in favor of customers
that it is the responsibility of the insurance company to get all information
correct at the time of proposal. The judiciary also takes this stand in favor
of the claimant. However, insurance companies deny the claims on the
reason of breach of trust (utmost good faith) which is the insurance
company and policyholder sign the insurance contract at the time of
taking the policy. The battle goes on.

Reinsurance
Reinsurance is another type of risk management tools that insurance
companies use in managing higher actual claims than expected. Insurance
companies purchase the insurance from reinsurance companies with a
retention limit. For example, for every claim of Rs.100, 000, the reinsurer
will pay Rs.80, 000 while the insurance company pays Rs.20, 000. This
Rs20, 000 is called retention limit of the insurance company and in place
of this insurance, insurance company pay a premium to Reinsurance
Company.

In the above example of expected 10 claims in a year, if the actual claims
turn out to be 25, then the insurance company will pay, Rs.20,000 * 25

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