Claim repudiation in the UMA environment

While some role players believe that underwriting management agencies (UMAs) are incentivised not to pay claims, fact of the matter is that UMAs are legally mandated to perform certain administrative functions on behalf of a principal insurer, and that the insurer is ultimately responsible for all policies issued by the UMA and therefore responsible to settle any valid claims received from its UMAs.

That said, it is important to note that it is in the best interest of both the insurer and its UMAs to operate with integrity, not only because they are registered as financial services providers (FSP) under the FAIS Act and the UMA arrangement is codified in terms of S48 of the Short Term Insurance Act, which makes them accountable for their actions, but also because reputation risks may arise if there is a lack of alignment between the various parties interests.

In addition, the slow or non-payment of claims is not sustainable and for obvious reasons not in the best interest of the policyholder and all insurance role players involved. Therefore, it makes good business sense for insurer principals and their UMAs to embrace claim settlement procedures and decisions that comply not only with the letter, but also with the spirit of the law as far as equity and fairness is concerned.

“Principal insurers must make it their duty to ensure that UMA partners are continuously educated on the exact route that needs to be followed with regards to the payment / non-payment of claims,” says Berna Hattingh, Claims Specialist at Centriq Insurance – an insurer that supports the UMA business model.

Centriq, for example, follows a 3-tier approach when it comes to the repudiation of claims in order to apply the principles of equity and fairness at all times. Once a UMA has made the decision to submit a claim for repudiation, the claim is submitted to a claims specialist within Centriq for validation and verification. Should the company not be able to accommodate the claim, lawyers are consulted (especially where large amounts are concerned) to verify and confirm the repudiation. We also look at the claim the way the Ombudsman for Short-term Insurance would look at the claim, and if it is apparent that the Ombudsman would rule in favour of the insured, should the claim ever be referred to his office, we prefer to entertain the claim,” explains Hattingh.

In general, however, Hattingh adds that the most effective way to prevent and mitigate the non-payment of claims, is to encourage policy holders to regularly check their policy schedule for items and amounts insured, taking into consideration the exclusions and preconditions that apply to the insurance contract. “Consumers also need to be continuously educated on aspects that can give rise to the repudiation of a claim, which include fraudulent statements and the non-payment of premiums, among others,” she concludes.