Loss fund repatriation: unlocking a treasure chest of value - Pro Global

Loss fund repatriation: unlocking a treasure chest of value

There is a significant volume of reserves languishing unnecessarily in Loss Funds that could be repatriated, but daily workloads are often overstretched


January 17, 2023

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There is a significant volume of reserves languishing unnecessarily in Loss Funds that could be repatriated, but daily workloads are often overstretched, and recovering such funds often falls by the wayside. With the spotlight on cost savings and efficiency, Senior Technical Claims Consultant at Pro Global, Chris Doherty, explains how expert support can release millions for insurers


$1 billion + reserves sitting unnecessarily in London Market Loss Funds 

$25 million + reserves released by Pro Global experts across two projects in 2022 alone

Across the re/insurance market, we estimate over £1 billion in reserves is sitting dormant in Loss Funds, despite all claims being paid in full. Why have these redundant Loss Funds historically been so hard to reconcile? 

Loss funds are a vital element in insurance; used to facilitate claims payments. Regulators mandate that Loss Funds must be stocked with sufficient and readily available funds to ensure swift payments – an outcome which is key to offering fair value to policyholders and upholding the fundamental principle of insurance, whereby the premiums of the many pay for the losses of the few. 

The accuracy of Loss Fund reserves is critical – insurers need to know how much money they need to keep to one side, and how quickly they can make payments once a claim has been approved.

Claims efficiency under the spotlight

For several years now, the London Market has been trialling standards to help streamline Loss Fund reserving processes and speed up claims payments to ensure the market can continue to compete globally as efficiently and effectively as possible. This initiative is already starting to have an impact, resulting in faster settlement times, fewer banking charges and reduced operational costs, and most importantly, it has led to full transparency and audit capability for Loss Fund managers. 

Similarly, Lloyd’s new digital claims solution for open market and delegated authority will be delivered by 2024 and aims to transform how claims are managed in the market by enabling digital interaction with brokers and insurers with enhanced functionality, reducing the central processing time for claims. There will also be greater transparency for customers and experts with faster agreement and settlement.

Lloyd’s Faster Claims Payment (FCP) is a new funding and payment solution which provides fast and direct payment of a claim to a policyholder. This solution decouples the payment of claims from the monthly bordereaux and Loss Fund top-up process, and Lloyd’s states that FCP facilitates direct access through the solution to insurer funds, via the Vitesse payment platform, decreasing any delay in payment. 

Clearly there is strong recognition that the speed of claims payments and ensuing Loss Fund repatriation work must be improved, and the London market is taking action to address this. This is particularly important at a time of strong focus on cost savings at insurers, who are battling economic headwinds that are putting pressure on their bottom line. 


Misleading data and loss ratios

It is perhaps surprising then that, historically, carriers have had little visibility as to where Loss Funds are held, leaving funds sitting dormant or remaining on older years where they incorrectly pay for claims, causing misleading data and loss ratio statistics for underwriters. 

Although insurers are able to track amounts and returns better than ever, in the London Market, we estimate over $1 billion is sitting unnecessarily in Loss Funds and is in need of repatriation. This is capital which could be put to far better use; however, instead of requesting funds to be returned when all claims have been paid, some insurers are simply writing them off

This is a staggering waste of money, but particularly during the current economic downturn which is rightly placing a sharpened focus on efficiency across insurer operations. And at the same time, it is likely to furrow regulatory brows too – insurance claims management when outsourced can be viewed as material outsourced activities, and the fact that some insurers do not have an accurate handle on their Loss Funds speaks volumes to the controls that are in place. 

Bring in the experts

But, to actively pursue Loss Funds requires time, effort, and resources. It’s often hard, forensic work – even a simple task, such as identifying the Loss Fund holder can be difficult to undertake. For many insurers, taking on a project of such scale is a challenge, especially when teams are already stretched with day to day work. 

In some extreme cases it is not known where the Loss Fund resides or who is responsible for managing them and liaising with TPAs / DCAs and other stakeholders to identify and reconcile these funds, and provide reports for claims and unallocated cash. 

We are seeing strong demand for skilled experts to pursue Loss Fund repatriation, particularly when a re/insurer does not have readily available in-house resources, in order to avoid millions in dollars of funds simply being written off. 

Pro Global’s claims consultants, who are familiar with the latest digital claims transformation initiatives and protocols, can hit the ground running when it comes to identifying and recovering funds. In 2022 over $25 million in reserves was released by Pro Global experts across two projects alone – significantly benefitting our insurer partners not only with a release of capital but also with the systems and protocols in place to improve the management of their Loss Funds and prevent such a build up of redundant capital happening in the future.

This is because external experts can also recognise flaws in any processes that are contributing to dormant Loss Funds – a practice which helps establish new procedures that can improve workflows and prevent similar situations happening again. 

A historic challenge

Over the years, our team has seen a variety of different reasons as to why funds have been left unaccounted for. In many cases, Loss Funds have been sent directly to a third party administrator (TPA) / Delegated Claims Administrator (DCA) and not via the broker. But there are also situations where funds have been returned but not processed through the Electronic Claim Files (ECF), meaning finance teams or claim handlers are unable to pick up or register any transactions. 

But now the digital tools, expertise and market drive to improve claims payment speeds exist to turn this challenge into a significant opportunity for the market. What’s more, the outcomes aren’t just confined to a single project, they are on-going; from reducing future Loss Fund exposures and strengthening internal procedures, to improving your bottom line

Quite simply, Loss Fund repatriation projects can help insurers improve their balance sheet resilience in the face of economic headwinds by releasing capital and improving efficiency. And with expert support, in-house teams are free to focus on business as usual operations and services, keeping clients and regulators happy. 

For more information on Loss Fund repatriation services provided by Pro Global, please visit our Loss Fund page

Meet our expert

Name: Chris Doherty

Job title: Senior Technical Claims Consultant

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