BAHIR DAR UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF

MANAGEMENT

Post graduate 1st year 1st semester extension program (MBA)

Analytical report Assignment II on Management theory and practice

Submitted to: Getnet Almaw (Ass. Professor)

Submitted By: Fekadu Birara Engidaw Id BDU 1301634

Email [email protected]

March 05, 2021

Bahir Dar, Ethiopia

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 ABAY INSURANCE SHARE COMPANY
Background of the organization
Abay insurance s.c was established in July 2010 In accordance with the licensing &
supervision of insurance business proclamation No 86/1994. The prevailing paid up capitals of
company is birr 234 million. Currently the company is providing general and long term (life
insurance) service through its 30 branch that would be increased to 35-37 branch’s operating in
different regions of the country by the end of 2020/2021 budget year. The company has
registered a remarkable growth since establishment and has managed to build a sustainable and
fruitful business relationship with various types of client’s having multiple of activities. The
company has a strong financial basis & has created a meaningful network with global partners
including prominent reinsurance would easily manage risk of any quantum.
The company has developed a well-articulated business principle that shapes overall
activities in a collaborative manner. Abay insurance promotes social markets & is striving to
share its parts by introducing insurance products demanded by low income people & the society
at large. The company is still envisaging & investing a lot in product development taking into
consideration the unsatisfied needs of its customer & the society at large. The company is also
well known in its community service & has participated in various occasion that contribute for
the overall wellness. Throughout all these years of service, the company has gained the
considerable loyalty & trust from its customers which it has cherished to strive more at all time.
Vision
To be the most preferred and iconic insurance in Africa
Mission
To provide diversified insurance services tailored to meet the ever changing risk exposure
facing the public by using ethical professionals facing the public and technology enablers in an
innovative and cost effective ways.
Guiding principle and core values
 Customers are the reason for our existence
 Team, loyal & diversity are inventible for our remarkable success,

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  Continues learning & improvement are our philosophy.
 Research & development, innovation & critics are valuable for our vision achievements.
 Quality & ethical professionalism are our parts of day to day activities.
 Social responsibility, transparency and accountabilities are the base for our sustainable
growth.
 Employees are our non-replaceable strategic resource.
Abay insurance providing more than 20 insurance products same of are:-
 Motor insurance  Feudality guaranty
 Fire & lightning  Burglary & housebreaking
 Engineering insurance insurance
 Liability insurance  Bond insurance
 Marin & cargo insurance  Travel insurance
 Personal insurance  Professional indemnity
 Workers composition  Life insurance
 Money insurance
Principle of insurance
1. Nature of contract:
Nature of contract is a fundamental principle of insurance contract. An insurance contract comes
into existence when one party makes an offer or proposal of a contract and the other party
accepts the proposal. A contract should be simple to be a valid contract. The person entering into
a contract should enter with his free consent.
2. Principal of utmost good faith:
Under this insurance contract both the parties should have faith over each other. As a client it is
the duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.
3. Principle of Insurable interest:
Under this principle of insurance, the insured must have interest in the subject matter of the
insurance. Absence of insurance makes the contract null and void. If there is no insurable
interest, an insurance company will not issue a policy.

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4. Principle of indemnity:
Indemnity means security or compensation against loss or damage. The principle of indemnity is
such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insured’s economic loss.

5. Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss,
6. Double insurance:
Double insurance denotes insurance of same subject matter with two different companies or with
the same company under two different policies. Insurance is possible in case of indemnity
contract like fire, marine and property insurance.
7. Principle of proximate cause
Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable
when the loss is the result of two or more causes.
2. Problems identification
2.1 Limitation of claims handling management (i.e. service delivery problem)
Abay insurance share company have a limitation of claims handling process & low customer
satisfaction with relative to other Ethiopian private share company due to achieving a cost
reduction in the claim management process and delivering on a value added brand promise to
customers, the focus seems to be effective and efficient managerial process in the claims to risk,
positioning of competitiveness.
Claim managements have no coordination with other department on decision-making process
and lack of teamwork’s with engineering inspection & service departments.
According to some insured’s, the belief is that the insurer is only in premium collection, and not
settlement of claim. Same points at certain inefficiencies that adversely affect customer’s claims
experience to include: aging technology, rising number of fraudulent claims and increasing

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complexity in the claims processes. However, the increasing difficulties in the claims
management processes are rationale for which this study is embarked upon, namely: customers
having low understanding of about insurance policy, in appropriateness in claims
acknowledgement betterment contribution & about deduction (Has the deductible been applied?,
whether there is a possibility of contribution, has the salvage amount been deducted?, has the
recovery process been initiated from third parties if applicable?) and assignment; ill-design of
information systems to identifying existing claims; communication gap between insurers and
customers, officer the determination of loss situation and amount, and inappropriate conclusion
and monitoring of claim handling process.
3. Method (Ideal Solution)
What Is an Insurance Claim?
An insurance claim is a formal request by a policyholder to an insurance company for coverage
or compensation for a covered loss or policy event. The insurance company validates the claim
(or denies the claim). If it is approved, the insurance company will issue payment to the insured
or an approved interested party on behalf of the insured.

Insurance claims cover everything from death benefits on life insurance policies to routine and
comprehensive medical exams. In some cases, a third-party is able to file claims on behalf of the
insured person. However, in the majority of cases, only the person(s) listed on the policy is
entitled to claim payments.

Claims handling is a major marketing tool, as you are aware, insurance is a promise to
pay in certain circumstances. When a claim occurs, this is often the first contact a customer
makes with the company since inception of the policy. A perception of a company gained at this
point is very important and is difficult to eradicate. Even if a claim is paid in full, customers can
be dissatisfied if the experience is less than what they expected. Claims service should therefore
provide at least the quality that the customer expects. Clients expect to be handled in an efficient,
effective and appropriate manner. This means that the claims must be handled in a consistent, yet
flexible and fair manner that is transparent, accurate and timely. Claim handling is an important
area in Insurance and Reinsurance management, and should not be down played as is often the

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case. This is because the core business of Insurance & Reinsurance is to pay claims. Simply put,

No claims = No insurance/Reinsurance business.

Internal Claims Environment:- This relates to the insurers own claims department, its claims
management strategy, organizational design, and structure. Internally, they interact with
underwriters, Finance, Sales, Actuarial, and Administration, engineering and inspection service

and Legal departments.

External Claims Environment:-This relates to those corporations outside the organization

(insurer) that it uses to attract and retain business as well as to help it service claims.

Such corporations include brokers, and service providers (loss adjusters, solicitors etc) as well as
regulators, investors, shareholders, clients and other stakeholders.
“Insurers are doing a great job at the critical customer touch point of claims reporting, but the
end-to-end claim process is still costly and not as fully integrated as it needs to be,” said
David Pilfer, Property & Casualty Insurance Practice Lead at J.D. Power, while introducing
a recent report. “The challenge for insurers is to seamlessly transition the claims reporting
function to more cost-effective digital customer care solutions. For many insurance customers,
reporting a claim is one of the few direct interactions they have with their insurer, and it comes at
a time when they are looking for a reassuring voice.
Claims processes has multiple touch points with many stakeholders and decision points, claims
processing involves many business rules that can be difficult to execute. This can result in
numerous employee tasks and a fragmented customer experience. Carriers seeking to automate
these processes will find many activities to track and manage and few comprehensive systems
capable of handling them all.
Abay Insurance Company may have to create awareness understanding about insurance policy,
to customers and other third party before issue the policy in order to prevent Customers’
expectations are increasing as their buying and servicing experiences outside their insurance

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needs impact what they expect from carriers. Given that insured’s only face a claim once every
several years, carriers need to be able to manage the emotions of the situation as well as the
logistics. Advanced technologies can help tame the complexity of the process, but there is no
substitute for the human element when it comes to providing reassurance and building trust.

4. Conclusion and Recommendation

In insurance company, current claims handling philosophy dictates that honest claims be met
fairly, equitably and promptly, but claims believed to be fraudulent should be challenged.
However insurers must take care to treat all customers fairly, in particular where they may be

incorrect in their assumptions regarding possible fraud but they have no proof. Fraudulent

claims have the effect of reducing the profitability of the insurance companies. At the end of the
day, somebody has to pay for this and this is the honest policy holder in terms of rising
premiums. To do these functions successfully, an insurer must have an efficient claims
department with:-

 Competent and well trained staff

 Efficient administrative support
 Efficient claims procedures
 Efficient record keeping and management information system.
 Clear corporate claims philosophy.
How an Insurance Claim Works
A paid insurance claim serves to indemnify a policyholder against financial loss. An individual
or group pays premiums as consideration for the completion of an insurance contract between the
insured party and an insurance carrier. The most common insurance claims involve costs for
medical goods and services, physical damage, loss of life, and liability for the ownership of
dwellings (homeowners, landlords, and renters) and liability resulting from the operation of
automobiles.
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For property and causality insurance policies, regardless of the scope of an accident or who was
at fault, the number of insurance claims you file has a direct impact on the rate you pay to gain
coverage (typically through installment payments called insurance premiums). The greater the
number of claims that are filed by a policyholder, the greater the likelihood of a rate hike. In
some cases, it's possible if you file too many claims that the insurance company may decide to
deny you coverage.

If the claim is being filed based on the damage to property that you caused, your rates will
almost surely rise. On the other hand, if you aren't at fault, your rates may or may not increase.
For example, getting hit from behind when your car is parked or having siding blow off your
house during a storm are both events that are clearly not the result of the policyholder.

However, mitigating circumstances, such as the number of previous claims you have filed, the
number of speeding tickets you have received, the frequency of natural disasters in your area
(earthquakes, hurricanes, floods) and even a low credit rating can all cause your rates to go up,
even if the latest claim was made for damage you didn't cause.

When it comes to insurance rate increases, not all claims are created equal. Dog bites, slip-and-
fall personal injury claims, water damage, and mold can all act as signals of future liability for an
insurer. These items tend to have a negative impact on your rates and on your insurer's
willingness to continue providing coverage. Surprisingly, speeding tickets may not cause a rate
hike at all. At least for your first speeding ticket, many companies will not increase your prices.
The same goes for a minor automobile accident or a small claim against your homeowner's
insurance policy.

In insurance company more formalized approach to ensure that the right resources are available
at the right time to provide:-

 Effective claims decisions

 Accuracy for quick settlement of losses and

 Measures to prevent future losses

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 Be active in claims handling and delegate in a controlled way to third parties such as
lawyers, experts, and loss adjusters

 Ensure good communication between all parties involved in the claims process,

 Investigate immediately after the occurrence of disaster.

 Concentrate in settling as many claims as possible and as quickly as possible.

 Skill full, Competent and well trained staff

 Efficient administrative support

 Efficient claims procedures

 Efficient record keeping

 A well written Corporate claims philosophy

 Use of quality management programmers

 Effective management of the claims department

 Effective use of information technology

Reference

 company or its website and internet