The Claims Lifecycle

TL;DR

• A claim starts with FNOL (First Notice of Loss) and moves through triage, investigation, and adjustment before reaching settlement or closure.

• In the Lloyd's open market, the lead syndicate's managing agent determines the claim on behalf of all following underwriters. Each syndicate then pays its signed line proportion.

• Delegated authority claims are handled by the coverholder or TPA within agreed limits, then reported to the market via claims bordereaux.

• In C2MS, claims follow a configurable workflow: Draft → FNOL → Contacted → Assessing → Coverage Determined → Adjusting → Closed. Transitions are role-based and can vary by product or claim type.

Claims Lead Arrangements (CLA)

Insurance in the Lloyd's market is subscription-based. A single risk is shared across multiple syndicates, each taking a percentage of the exposure. When a claim arises, you can't have every syndicate independently deciding whether to pay. That would be unworkable for claimants and brokers alike.

The Claims Lead Arrangement (CLA) solves this. Under a CLA, one syndicate is designated the claims lead. Its managing agent has authority to investigate, negotiate, and determine the claim on behalf of all following underwriters. The lead's decision binds the rest of the market, subject to the terms of the arrangement.

For more complex or high-value claims, a second syndicate may be appointed alongside the lead. This second syndicate provides an additional layer of oversight and can be required to agree on key decisions before they bind the market. The threshold for requiring a second syndicate is typically set by financial size or claim complexity, and is agreed at placement.

The Claims Lifecycle

A claim passes through several distinct stages from the moment it's reported to the point it's closed. Each stage has a defined purpose, and the people involved change as the claim progresses.

1. FNOL — First Notice of Loss

FNOL is the initial notification that a loss has occurred or may have occurred. It's the trigger that opens a claim record and starts the clock on any response obligations.

How FNOL reaches the market depends on the type of business:

• Open market: The broker submits the claim notification directly through ECF (Electronic Claims File) or CLASS, the Lloyd's electronic claims systems. The notification lands with the lead syndicate's claims team.

• Delegated authority: The insured notifies the coverholder or TPA (Third Party Administrator), not the market directly. The coverholder handles the claim within its delegated authority. Claims are then reported to the market in aggregate via a claims bordereaux, typically monthly.

At FNOL, the information available is often incomplete. The date of loss, a brief description, and an initial estimate are usually enough to open the record. More detail follows during investigation.

2. Triage and Assignment

Once a claim is received, it's triaged to determine how it should be handled. The key question is whether the claim is standard or complex.

• Standard claims are straightforward in coverage and quantum. They're assigned to a claims handler and processed through a defined workflow.

• Complex claims involve coverage disputes, large financial exposure, multiple parties, or unusual circumstances. They're escalated to senior handlers or specialist teams, and may require a second syndicate to be involved under the CLA.

Financial thresholds play a big role here. Most managing agents set internal limits: claims below a certain reserve value are handled by junior handlers, while larger claims require senior sign-off or committee review. These thresholds are set by the managing agent and can vary by class of business.

Triage isn't always a one-time decision. As a claim develops and new information emerges, it can be re-triaged and reassigned. This is sometimes called dynamic triage.

3. Reserve

A reserve is the amount set aside to cover the expected ultimate cost of a claim. It's not a payment — it's an accounting estimate that sits on the balance sheet until the claim is settled or closed.

Reserves are set as early as FNOL, even when information is limited. The initial reserve is a best estimate based on what's known. It's reviewed and updated throughout the claim's life as more facts emerge.

Reserves typically include two components:

• Outstanding loss reserve: the estimated cost of claims that have been reported but not yet settled.

• IBNR (Incurred But Not Reported): an allowance for losses that have occurred but haven't yet been notified to the insurer. IBNR is particularly important for long-tail classes like liability, where claims can emerge years after the policy period.

Reserving accuracy matters. Under-reserving flatters short-term results but creates problems at settlement. Over-reserving ties up capital unnecessarily. Lloyd's requires managing agents to maintain adequate reserves and reviews them through the annual syndicate business planning process.

4. Investigation and Adjustment

This is the substantive phase of the claim. The claims handler — sometimes supported by external loss adjusters — gathers evidence, assesses coverage, and quantifies the loss.

Investigation typically involves:

• Reviewing the policy wording to confirm coverage applies to the type of loss and the circumstances.

• Gathering evidence from the insured, brokers, third parties, and experts (surveyors, engineers, forensic accountants).

• Quantifying the loss — establishing what was damaged or lost, its value, and what the policy will pay after applying deductibles, limits, and any applicable conditions.

Loss adjustment is the process of agreeing the quantum with the insured or their representative. For large commercial claims, this is often a negotiation. The adjuster's role is to reach a fair settlement that reflects the policy terms, not simply to minimise the payout.

5. Settlement

Once coverage is confirmed and the loss is quantified, the claim moves to settlement. In the Lloyd's subscription market, each syndicate pays its share of the agreed settlement in proportion to its signed line.

Payment is made through one of two routes:

• ECF/CLASS: the standard Lloyd's electronic claims settlement route, used for most open market claims. The lead agrees the settlement, and the market processes payment through the central system.

• FCP (Faster Claims Payment): a mechanism introduced to speed up payment for smaller, straightforward claims. FCP allows the lead to authorise payment without waiting for the full market agreement process, reducing settlement time significantly.

Partial settlements are common on large claims. An interim payment may be made while investigation continues, with a final settlement agreed once all facts are established.

6. Repudiation

Not every claim results in payment. If the claim falls outside the policy coverage — wrong type of loss, exclusion applies, condition precedent not met, or the policy was void — the insurer repudiates (declines) the claim.

Repudiation must be communicated clearly and in writing, with the specific grounds stated. The insured has the right to dispute the decision. Dispute mechanisms include:

• Internal review by the managing agent's senior claims team.

• Lloyd's Complaints process, for policyholders who remain dissatisfied.

• Arbitration or litigation, for larger commercial disputes where the parties can't reach agreement.

7. Closure

A claim is closed when it's fully resolved. That means all payments have been made (or the claim has been repudiated), all reserves have been released, and no further activity is expected.

Closed claims can be reopened. If new information emerges — a late invoice, a subrogation recovery, or a reopened legal action — the claim record is reactivated and the process resumes from the appropriate stage.

Claims for Delegated Authority Business

When a managing agent grants delegated authority to a coverholder or TPA, that authority usually includes the right to handle claims up to a defined limit. The coverholder acts as the insurer's representative for the insured, managing the full claims process locally without needing to refer each claim back to Lloyd's.

Key features of delegated claims handling:

• Per-claim limit of authority: the coverholder can settle claims up to a specified amount (e.g. £50,000 per claim). Claims above this limit must be referred to the managing agent before settlement.

• Claims bordereaux: the coverholder reports all claims activity to the managing agent on a regular basis (usually monthly) via a structured data file. The bordereaux includes claim reference, date of loss, reserve, payments made, and current status.

• Loss fund: some binding authorities include a loss fund mechanism. The managing agent pre-funds a pool of money held by the coverholder, which is drawn down as claims are paid. The coverholder reconciles the fund against the bordereaux and requests top-ups when the balance falls below a threshold.

The managing agent retains oversight through bordereaux review, periodic audits of the coverholder's claims handling, and the right to take over handling of any claim that exceeds the authority limit or raises concerns.

Claims in C2MS

C2MS tracks claims through a defined set of statuses that map to the lifecycle stages above. The standard progression is:

1. Draft — the claim record has been created but not yet formally submitted. Used when a handler is gathering initial information before opening the claim.

2. FNOL — the first notice of loss has been received and the claim is formally open. Reserve is set at this stage.

3. Contacted — the claims handler has made contact with the insured or their representative. Initial information has been exchanged.

4. Assessing — investigation is underway. Evidence is being gathered and coverage is being reviewed.

5. Coverage Determined — the coverage position has been established. The claim is either confirmed as covered, partially covered, or declined. If declined, the claim moves toward repudiation and closure.

6. Adjusting — loss adjustment is in progress. Quantum is being agreed with the insured or their loss adjuster.

7. Closed — the claim is fully resolved. All payments made, reserves released.

This means the statuses above are the defaults, not a fixed rule. A product configured for fast-track claims might skip the Contacted and Assessing stages for low-value losses. A complex liability product might add additional statuses for legal review or committee sign-off. The workflow is configured per product and per claim type by your system administrator.

Key Claims Terminology