Why is timely reporting so important to reinsurers?
Here are some basic reasons why reinsurers insist on timely reporting:
i. FINANCIAL INFORMATION: The Reinsurer must reserve their exposures just like the Cedant, project payment of future settlements and promptly pay billings.
ii. PRICING: The Reinsurer will need to know both the frequency and severity of reportable claims, in addition to reserve and settlement information, to properly price the reinsurance contract renewal.
iii. AUDIT: The Reinsurer has a right to review the Company’s records and usually does this in conjunction with an annual or semi-annual audit. In addition to verifying financial information, the audit helps them to evaluate quality of claim handling. Timely reporting helps the Reinsurer ascertain the necessity of an audit and the amount of resources necessary to do it.
iv. RIGHT TO ASSOCIATE: A Reinsurer may want to utilize their own expertise and attorneys to minimize their exposure under the reinsurance contract, especially on claims where they have a high level of specialization or experience. Delayed notice may preclude effective association.
v. RIGHT TO COUNSEL/CONSULT: If the reinsurer does not have prompt notice and sufficient information about the claim, any right to counsel/consult with the Company is effectively defeated.
vi. RIGHT TO CONCURRENCE: Often the Reinsurer may have more money at risk than the Company, so the reinsurer wants to have a final say in the ultimate settlement. Delayed notice may delay concurrence and jeopardize coverage.
The usual practice in the industry is to report claims through the reinsurance broker.In conditions where the cedant has contracted directly with the reinsurer then the cedant will report claims directly to the reinsurer.
CLAIMS REPORTING OF INDIVIDUAL LARGE LOSSES
Our focus will be on the reporting of large losses individually. The typical contractual requirement for reporting large losses will contain language requiring “prompt” or “timely “ notice as suggested by the following provision:
The Company shall give prompt written notice to the reinsurer of any claims or loss which in the sound judgment of the Company may result in a Net Loss to the Reinsurer and of all subsequent important developments involving that claim or loss.
The term “prompt” is not defined in the reinsurance contract. Other contracts that require “timely” notice also fail to define the term. Either term may be equally susceptible to multiple court interpretations. Whether the insurer acted with the requisite promptness when providing the reinsurer with a definitive statement of loss is often a fact question.
Therefore, as a practical matter, claim professionals may wish to adopt the following approach:
- Always report the claim in writing
- Consider reporting financial changes relative to reserves and settlement demands or offers close in time to their implementation.
- Remember there is a continuing obligation to report material developments.
The wording of some reinsurance contracts makes prompt notice a condition precedent to payment by the reinsurer.
The condition precedent language is stronger in favor of the reinsurer, if the cedant acts in bad faith in its handling of the claim, the reinsurer may not be required to show prejudice from late notice.
Most reinsurance contracts make mandatory the reporting of certain categories of claims. Excess of loss contracts will require reporting of all losses where the indemnity reserve meets or exceeds a certain threshold.
• Reinsurance recoverables are an insurance company’s losses from claims that can be recovered from reinsurance companies.
• These recoverables may be among some of the largest assets on the original insurance company’s balance sheet.
• Recoverables are generally considered liabilities for reinsurance companies.
Investopedia: Reinsurance Recoverables.investopedia.com/terms/r/reinsurance-recoverables.asp
Peter Hildebrand, LLC 3418 Woodshire Crossing Marietta, (fax)firstname.lastname@example.org