1. Claims Experience Requirements
1.1 Underwriting
No insurance company should ever provide a quotation without having adequate underwriting information on which to scientifically determine the premium rates appropriate for policy terms & conditions offered.
The following requirements must be adhered to in all circumstances:
• During 2014, quotations may only be provided if at least one or more years’ claims experience is provided. • During 2015, quotations may only be provided if at least two or more years’ claims experience is provided. • From 2016 onwards, quotations may only be provided if at least 3 or more years’ claims experience is provided. • If a risk is entirely new, the insurance company may only quote the book rates, which have been submitted to SAMA. The insurance company is not allowed to apply any discounts to these rates. • If the risk has been in existence for less than 3 years from 2016, or 2 years from 2015, then the insurance company may quote provided they receive full claims experience for the time the risk has been in existence. • No insurance company is allowed to provide any quotation for medical expenses or motor business unless it has received claims experience as above. • An insurance company can provide a quotation as illustration only based on the information provided to it. However, the insurance company must amend the quotation based on full underwriting data. It may not issue a policy on quoted rates until it has full data to provide an accurate quotation. Under no circumstances may an insurance company provide actual rates, unless it has sufficient data subdivided according to the rating factors it will adopt in its underwriting manual. • For medical expenses insurance full demographic data must be provided before any quotation may be provided.
1.2 Nature of the Claims Experience to be Required
Insurance companies must require that the claims experience consists, at a minimum, of the following:
• Number of claims paid by policy year • Amount of claims paid by policy year • Numbers of claims reported but not yet settled by policy year • Claim amount of claims reported but not yet settled by policy year • Deductible or excess applied for each policy year. • The date the claims data was provided and the precise period of the claims experience. • The provided data for the in-force policy year should represent enough claims experience for the policy within six months before the renewal date (i.e. at least 6 months claims paid).
For motor insurance:
• Information should be provided as to how depreciation provision is applied when settling a claim for comprehensive coverage. • The amounts should be net of any allowance for salvage and/or subrogation for motor claims. • The number of vehicles covered at each renewal date and at the date of the claims data should be provided for fleet or leasing schemes.
For medical expenses insurance:
• The number of lives covered at each renewal date, and at the date the claims data should be provided and separated by age, gender and employee or dependent status. • The amounts should be the actual ones payable to the medical service providers at the time of the claim, and therefore gross of any bulk discount applied in arrears for medical expenses claims.
It should be noted that all claims dates referred to in this Circular are accident or treatment dates. For the definitions of the terminology mentioned in this Circular with respect to the claims experience, please refer to the Financial Reporting Forms - Guidelines published by SAMA.
The insurance industry has proposed that it should develop a standardised form to ensure that the claims experience data provided is consistent across all insurers. SAMA has no objection to any standard form being developed, but the above information must be used to provide from the effective date of this Circular, whether or not a standard form has been agreed by then.
1.3 Responsibility for Providing Claims Experience
The key relationship is between the policyholder and the insurance company. SAMA requires that the insurance company provides the policyholder, upon his written request or his representative’s written request (i.e. broker), within 15 working days of making the request with sufficient and accurate information of his claims experience. It is the responsibility of the policyholder to provide the insurance company with sufficient and accurate information for it to price and underwrite the risk it is taking on.
Where the insurance company outsources its claims administration to a TPA, then the TPA is required to provide the data requested to the insurance company within 10 working days of its request.
The claims experience report issued by either the insurance company or its TPA must be stamped & signed by the authorised person and the report must be printed on the issuer heading letters (insurance company or its TPA).
After receiving the claims experience, the policyholder should review the report and confirm in writing that he reviewed it and that all information included within the report is accurate to the best of his knowledge.
With respect to the personal lines of the business, the insurance company is not required to obtain the policyholder’s claims experience in a report format from policyholder or the existing insurance company; instead the insurance company should ensure that its proposal form asks about all material facts including the policyholder’s claims experience.
If it is found that inaccurate claims experience was provided then the insurance company should have the right to review the premium rate charged, and take appropriate actions. These could include adjusting the premium, or requiring that any commission paid to the broker be refunded if due to broker misrepresentation or non-disclosure.
In extreme circumstances where evidence has been obtained that claims data provided to the insurance company in order to quote was misstated with fraudulent intent, then the insurance company may cancel the policy and take the proper actions against the parties who are responsible for that.
1.4 Role of Brokers
A broker may collect the claims experience and provide it to the insurance company. It should be noted that brokers must act on behalf of the policyholder and conduct their business according to professional and ethical standards and as per the applicable laws and regulation, including the provisions of the Implementing Regulations of the Law on Supervision of Co-operative Insurance Companies, Insurance Intermediaries Regulation, Market Code of Conduct Regulation and Regulation of Reinsurance Activities Regulation.
Using a broker to collect this data does not in any way reduce the responsibility of the policyholder to ensure that accurate information is provided to the insurance company.
1.5 Pricing of Group Medical or Motor Fleet/Leasing Risks
Insurance companies should comply with the following instructions when applying the claims experience:
1. Apply an experience rating approach for group or fleet/leasing risks, and must supply a fully justified credibility formula set out and signed off by the company’s Appointed Actuary. 2. A form or Excel spreadsheet should be produced which ensures that the pricing mechanism adopted complies with the credibility formula that is signed off by the company’s Appointed Actuary. A copy of the form or Excel spreadsheet should be provided to SAMA. 3. The Appointed Actuary should determine the annual increase in the burning costs allowing for claims trends, inflation to be built in the credibility formula calculation mechanism. 4. The Appointed Actuary’s pricing report should specify the size of schemes for which this blended pricing approach must be adopted. It must define the size of smaller schemes where book rates should be used. 5. The insurance company may request that its Appointed Actuary assist with individual quotations for a particular scheme if it considers that there are reasons why the scheme falls outside the standard pricing process. All such individual quotations must be fully documented, auditable, and made available to SAMA on request. The Appointed Actuary should ensure that these individual quotations fall outside the standard pricing process before providing his/her recommendation, and he/she may be held liable if he/she quotes rates for individual schemes which are later shown to be too low resulting in losses to the company.