Insurance companies can cede a portion of their life insurances risks to reinsurance companies. And like a ceding company, a reinsurer carefully manages its claim liability.
When a ceding company approves a life insurance claim, the company pays the full amount of the policy proceeds to the beneficiary and then requests reimbursement from the reinsurer for the amount of the risk that was reinsured. Because reinsurers have a keen interest in which claims are approved and the amounts payable, a reinsurer's claim staff typically maintains close contact with claim analysts of the ceding companies whose risks they assume.
Many reinsurance treaties require that the ceding company notify the reinsurance promptly when the ceding company receives a claim. Timely notification is beneficial to both the ceding company and the reinsurer for the following reasons:
The prompt notification gives the reinsurer ample time to verify its liability and resolve any administrative questions. Reinsurers' claim staff are experienced in the medical, legal, and investigative aspects of claim handling and can greatly assist the ceding company's claim analysts in deciding the validity of claims.
The reinsurer may be alerted to situations involving multiple claims submitted for the same insured to different ceding companies. The reinsurer can advise its ceding company clients of this fact, which is particularly important when some or all of the claims are contestable, the claim involves large face amounts, or fraud is suspected.
The reinsurer is not a party to the underlying insurance contract and therefore has no authority to approve or deny a claim. The final decision about a claim rests solely with the ceding company. Although the reinsurer can make a claim decision recommendation to the ceding company on a claim, the ceding company is not obligated to follow the reinsurer's recommendation.
However, depending on the terms of the reinsurance treaty, the ceding company may be required to obtain confirmation of a claim approval from the reinsurer before notifying the beneficiary of the approved and paying benefits. Many reinsurance treaties also require the ceding company to obtain the reinsurer's approval of any potential claim denial and to notify the reinsurer of any potential lawsuit or claim settlement.
Reference:
Miriam A Orsina, FLMI, PCS, ARA, PAHM & Gene Stone, FLMI, ACS, CLU. 2005. Insurance Company Operations. Life Office Management Association, Inc.
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