All insurance and reinsurance companies want to avoid public disclosures or headlines regarding significant reserve increases, such as the recent newsworthy reserve adjustments that more than a few companies have taken for asbestos, silicosis, or other large tort liability claims. But how? The secret lies in the early identification of “bad” claims when there is time to alter the claims handling approach and minimize the company’s exposure.
Throughout the property/casualty (P&C) insurance industry, prescient companies use watch lists as a tool for the proper management of these claims and to enhance operations from underwriting and actuarial to financial reporting. Most companies would agree that using watch lists is a good approach, but establishing a watch list process, identifying which claims to include and deciding how to handle those claims, once identified, often is a challenge.
What is a Watch List and how do P&C Insurers Use Them?
Merriam-Webster defines a watch list as follows:
“A list of people or things that are being closely watched because they are likely to do or experience bad things in the future.”
Similar to the Federal Bureau of Investigation’s watch list for terrorists and professional sports teams’ scouting watch lists to identify potential team additions, the P&C sector’s watch lists identify exposures—claims, claim notifications or potential future claims —to monitor closely. By placing greater focus on these claims, a company can enhance the handling of these claims to mitigate their financial impact, alter underwriting and pricing approaches appropriately, and provide greater transparency in the reserving and financial reporting process.
Watch lists often act as an early warning system to flag potentially large claims, streamline the assignment of claims handling and legal resources with the appropriate level of expertise, and determine appropriate pricing and reserving treatment in the actuarial analyses. For those watch list exposures that arise from an observation of industry events for which claims have not yet been reported, a watch list facilitates a more thorough understanding of a company’s exposures, including the potentially impacted lines of business, the limits exposed, and any pending litigation. Effective use of watch lists can have an impact throughout the organization well beyond the claims department. In fact, the impact can certainly reach the underwriting, actuarial, marketing, ceded reinsurance departments, and —depending on the magnitude of the exposure—even the c-suite. Below are some examples of how insurance companies utilize watch lists to impact strategies, operations and financial results.
What Information does a Typical Watch List Include?
Routine, high frequency claims do not warrant special focus or monitoring and, as such, do not belong on a watch list. Rather, watch lists typically contain claims with unusual exposures or catastrophic potential; specific characteristics may include:
For the full article, refer to page 18 in the Fall 2017 issue. https://www.airroc.org/assets/docs/matters/AIRROC-Matters-Fall-2017-vol-13-No-2.pdf