4 Major Types Of Claims Settlement

4 Primary Types Of Claims Settlement

Claim settlement marks the final phase of the insurance claim process. By this stage, the insured has notified the claim, all parties involved have fulfilled their obligations, and the insurer can settle claims accepted under the insurance contract in the following manners:

1. Payment in monetary form
2. Item replacement
3. Reinstatement
4. Covering repair costs

These methods are elaborated below:

1. Payment in monetary form: This involves disbursing cash, issuing a cheque, or conducting an electronic transfer to the claim beneficiary as outlined in the contract terms. It’s the simplest means of providing indemnity, commonly observed in life insurance cases.
2. Item replacement: The insurer may opt to replace lost, damaged, or stolen items as per the agreement. This type of settlement is frequently encountered in car insurance policies.
3. Reinstatement: In cases like building damage, the insurer may agree to reinstate the claim settlement, committing to cover the full cost of building restoration even if it surpasses the agreed sum insured.
4. Covering repair costs: Alternatively, the insurer may choose to pay for repair expenses. Here, the insurer seeks a written estimate for repair costs and directly pays the repairer. This settlement method is prevalent in car insurance.

Approaches to Claim Recovery

Once the claim has been fully paid, insurers have three primary methods to recover insurance claims:

1. Contribution: This grants insurers who’ve fully paid the claim the right to request other liable insurers to share the claim payment burden.
2. Subrogation: This empowers insurers to seek recovery from any third party responsible for or contributing to the loss or damage.
3. Right Of Recovery: If the lost or stolen item is recovered after claim payment, insurers retain the right to collect the property back if the insured reimburses the claim amount in full.

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Conclusion

Given the potential for fraudulent insurance claims, insurers must thoroughly investigate claims before settlement. In Nigeria, failure to investigate claims upon notification from the insured is considered an offence.

Every insurance company typically maintains a dedicated claims unit focused on fraud prevention. This unit collaborates closely with underwriting and audit units to validate the authenticity of all claim notifications received.