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An authorized insurer’s responsibility to handle and settle insurance claims fairly and promptly

May 2023

Handling and settling claims under insurance policies is integral to the conduct of insurance business. Indeed, for policyholders, being able to obtain reimbursement for losses incurred under the insurance policies they purchase is the very purpose of buying insurance.

Efficient and expeditious claims handling can, therefore, enhance an insurer’s reputation in the eyes of the policyholders it serves. Poor claims handling, by contrast, through unjustified delays or inadequate explanations on claim decisions has the opposite effect and serves to erode the trust on which the insurance market must be founded.

The insurance regulatory framework in Hong Kong sets minimum principles and requirements for claims handling by authorized insurers with the objective of ensuring policyholders are treated fairly and their interests are protected in the claims handling process. In this article we explain these regulatory principles and standards. Then in the next article, with a specific focus on medical insurance claims, we provide guidance on what the Insurance Authority (“IA”) will look for in its inspection and supervision work to evaluate whether an insurer is satisfying these requirements in its claims handling practices as part of the conduct of its insurance business.

Regulatory requirements on the conduct of claims handling

When handling and settling claims under insurance policies, insurers must abide by the following principles and standards set out in Guidelines issued by the IA:

1) Handling claims fairly and promptly – When dealing with claims from policyholders an authorized insurer must handle and settle claims fairly and promptly. Whilst this principle is expressly stated in Section 7 of “Guideline on Medical Insurance Business, Guideline 31” (“GL31”) it is one which has broad application to all claims handling in all lines of insurance business.

2) Transparency and guidance – An authorized insurer must provide policyholders with sufficient information and timely advice about the claims-handling process and clear explanations in plain language on claim results. This means that: 

  • firstly, an authorized insurer must provide reasonable guidance to assist a policyholder in making a claim.
  • secondly, an authorized insurer should provide appropriate information to the policyholder on the progress of the claim assessment; and
  • thirdly, an authorized insurer should provide adequate and clear explanation of the claim decision.

(Section 7 of GL31 and the Frequently Asked Questions issued by the IA).

3) Robust corporate governance, policies and procedures – An authorized insurer should have in place proper policies and procedures regarding settlement of insurance claims in order to ensure that it discharges its obligations in 1) and 2) above so that its policyholders are treated fairly in the claims handling process. (Section 10 of the IA’s “Guideline on Corporate Governance of Authorized Insurers, Guideline 10” (“GL10”)).

In applying these principles, it is recognized that an insurance policy is a contract and an insurer is obliged to pay claims in accordance with the terms and conditions of that contract. Of necessity, therefore, the claims handling process requires the insurer to have a reasonable opportunity to assess the claim and verify that it is payable under the terms and conditions of the insurance policy, and how much is payable. The onus is on the insurer to conduct its claims assessment efficiently and expeditiously to ensure that a decision on the claim can be made promptly so policyholders have certainty on whether the claim is covered within a reasonable timeframe and the amount that is to be paid. Further, the insurer must carry out the assessment fairly, only asking for sufficient (and not excessive) information that is necessary for it to assess the claim and it must assess the claim in an impartial and objective manner.

The principles and standards in the insurance regulatory framework seek to draw a balance between an insurer’s need to collect sufficient information so it only pays claims within the scope of coverage, whilst at the same time ensuring that the process is clear to policyholders, promptly carried out and objectively (and fairly) completed.

The efficiency and speed at which an insurer settles claims (and the number of claims it pays versus those it rejects) is often a factor that sets the reputation of the insurer (and the insurance market as a whole). It is imperative, therefore, that all authorized insurers ensure their claims handling processes maintain the appropriate balance between assessment and promptness of claims decision so that policyholders are treated fairly in the claims handling process in line with the applicable regulatory principles.