9. Claims, Reinsurance and Other Operational Interfaces

Introduction and Context

Insurance operations do not end when a policy is issued. The real test of an insurer’s promise arises when a claim is reported, coverage is examined, reserves are established, payment is authorized, and financial and regulatory records are updated. Claims administration therefore cannot be treated as an isolated department. It is connected to underwriting, policy administration, finance, actuarial work, fraud management, reinsurance, legal services, customer service, and regulatory reporting.

These connections are operational interfaces: points at which information, authority, money, risk, and accountability move between functions. A weakness at any interface may produce an incorrect claim decision, delayed settlement, misstated reserves, missed reinsurance recovery, regulatory breach, or customer dispute. Effective insurance management requires these interfaces to be designed and controlled as an integrated operating system.

This chapter examines how policy records support claims eligibility and coverage verification; how reserves, fraud referrals, recoveries, and reinsurance transactions are coordinated; and how information flows into finance, actuarial analysis, and regulatory reporting. The emphasis is not merely on procedural sequence but on managerial judgment, control quality, data integrity, and the consequences of operational choices.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Explain the relationship between policy administration and claims operations.

2. Verify coverage, eligibility, exclusions, limits, deductibles, and policy conditions in a structured manner.

3. Distinguish claim estimates, case reserves, incurred-but-not-reported reserves, and recoveries.

4. Design appropriate interfaces for fraud referral, salvage, subrogation, and other recoveries.

5. Explain treaty and facultative reinsurance administration and the importance of cession records.

6. Evaluate the contribution of claims data to finance, actuarial, and regulatory reporting.

7. Identify operational, ethical, technological, and governance risks at cross-functional interfaces.

8. Apply an integrated approach to a complex claim involving coverage, reserving, fraud, recovery, and reinsurance.

1. The Claim as an Integrated Operational Event

A claim is an event that activates several promises and controls embedded in an insurance contract. At first notification of loss, the insurer must identify the policy, establish whether it was in force, determine whether the reported event falls within the insured peril, protect evidence, assess probable liability, and initiate financial measurement. These actions are interdependent. For example, a wrong policy version may lead to a wrong coverage decision; a wrong coverage decision may lead to an inaccurate reserve; and an inaccurate reserve may affect solvency reporting and reinsurance recovery.

The core operational chain can be represented as:

Policy data → First notification of loss → Coverage verification → Investigation and assessment → Reserving → Decision and settlement → Recovery and reinsurance → Financial, actuarial, and regulatory reporting.

This is not necessarily a strictly linear process. A late-discovered endorsement may require a reassessment of coverage. New evidence may change a reserve. A recovery from a negligent third party may affect the net cost of the claim. A reinsurance dispute may require correction of the cession record. Claims administration is therefore a controlled cycle of information updating rather than a one-time decision.

The quality of the cycle depends on three principles. First, the information used must be authoritative and traceable. Second, decisions must be made by persons with appropriate authority and competence. Third, every material action must leave an auditable record.

2. Policy Administration as the Foundation of Eligibility

2.1 The authoritative policy record

The policy administration system should provide a reliable version of the contract applicable on the date of loss. Important fields include the policy number, insured identity, risk address, period of insurance, product and coverage code, sum insured or limit of liability, deductible, endorsements, conditions, premium status, cancellation or reinstatement history, and any changes made after inception.

A claim handler should not rely solely on a customer’s copy of a policy, a manually prepared spreadsheet, or an informal statement from an intermediary. Those sources may be useful evidence, but the operational decision should be based on controlled records and documented verification. Where systems conflict, the discrepancy should be escalated rather than silently resolved.

2.2 Coverage verification

Coverage verification normally addresses five questions:

• Was the contract valid and in force at the time of loss?
• Was the claimant an insured, beneficiary, loss payee, or otherwise entitled person?
• Did the reported event fall within an insured peril or benefit definition?
• Do exclusions, conditions, warranties, waiting periods, or deductibles alter liability?
• What limit, sub-limit, co-insurance provision, or settlement basis applies?

Verification also requires attention to causation. The fact that damage occurred during the policy period does not automatically establish liability. The proximate or legally relevant cause must be compared with the insured peril and applicable exclusions. In health or life insurance, eligibility may depend on membership, age, waiting periods, nomination, medical definitions, or benefit schedules rather than property causation.

2.3 Policy changes and temporal accuracy

Endorsements, renewals, cancellations, reinstatements, mid-term adjustments, and premium-related actions create temporal complexity. A policy may have different limits before and after an endorsement. A cancellation may be effective on one date while being processed on another. The relevant question is generally not when the transaction was entered into the system, but when it became legally and operationally effective under the applicable contract and rules.

A mature administration system preserves a version history. It should be possible to reconstruct the policy as it existed at the time of loss, identify the user who made each change, and distinguish original data from subsequent corrections. This capability is particularly important in disputes and regulatory reviews.

3. From First Notification to Claim Decision

First notification of loss (FNOL) is more than a customer-service interaction. It establishes the initial fact pattern, starts service-level measurements, identifies urgent needs, and creates the first financial and investigative record. The FNOL process should capture date, time, location, event description, parties involved, immediate loss estimate, contact details, police or medical references where relevant, and any known third-party responsibility.

Early triage assigns the claim to an appropriate pathway. Low-value, low-complexity claims may be handled through straight-through or streamlined processes. Claims involving serious injury, disputed liability, suspected fraud, litigation, large losses, vulnerable customers, or possible catastrophe exposure require specialist oversight.

Investigation should be proportionate to the risk. It may include document review, interviews, site inspection, expert assessment, medical evidence, police reports, repair estimates, digital photographs, or forensic analysis. Investigation is not intended to create unnecessary barriers to legitimate claims. Its purpose is to establish facts fairly and consistently.

The claim decision should state the coverage conclusion, factual basis, applicable policy provisions, amount payable or reason for denial, deductions, recovery rights, and appeal or complaint options. A payment without a recorded rationale weakens auditability; a denial without clear reasoning creates avoidable customer and legal risk.

4. Reserving: Measuring the Unpaid Obligation

4.1 The purpose of reserves

A claim reserve is an estimate of the insurer’s unpaid obligation relating to a reported or incurred loss. Reserving supports timely settlement, liquidity planning, financial reporting, pricing analysis, reinsurance administration, and solvency assessment. It is not a prediction of profit, nor is it simply an amount chosen to protect management from criticism.

The initial reserve should be established as soon as sufficient information is available and should be revised when material facts change. A reserve may be increased because of worsening injuries, newly identified damage, legal developments, inflation, or expert evidence. It may be reduced when liability is narrowed, estimates decline, or a recovery becomes sufficiently certain.

4.2 Case reserves and IBNR

A case reserve is attached to a known reported claim and reflects the estimated unpaid amount for that claim. It may include indemnity, defense costs, medical expenses, adjustment expenses, and other components according to the insurer’s methodology.

Incurred-but-not-reported (IBNR) reserves address losses that have occurred but have not yet been reported, as well as development on reported claims that is not fully captured by case reserves. IBNR is generally estimated at portfolio level using actuarial methods and historical or predictive information. It should not be confused with an unreviewed collection of old case estimates.

The broad relationship is:

Ultimate loss estimate = Paid loss + outstanding case reserve + applicable IBNR or development allowance.

The exact accounting and actuarial treatment depends on the reporting framework and the insurer’s policies. Claims staff provide granular facts; actuaries evaluate aggregate development and uncertainty; finance records the recognized amounts.

4.3 Governance of reserving

Reserve authority levels should be defined by claim type, amount, complexity, and jurisdiction. Material changes require a documented reason. Large-loss committees, peer review, independent quality assurance, and periodic reserve audits can reduce inconsistency. Managers should monitor reserve adequacy without encouraging systematic over-reserving or under-reserving.

Key indicators include reserve development, claim closure rates, average settlement time, reopened claims, paid-to-incurred ratios, large-loss frequency, and reserve changes after audit. These indicators are useful only when interpreted in context; a high closure rate, for example, may indicate efficiency or premature closure.

5. Fraud Referral and Claims Integrity

Fraud occurs when information is intentionally falsified or manipulated to obtain an insurance benefit to which the claimant is not entitled. It may involve staged accidents, inflated invoices, fabricated losses, identity misuse, collusion, policy manipulation, or organized networks. Fraud management must distinguish suspicion from proof. A referral is an investigative signal, not a finding of guilt.

A controlled referral process records the indicators, preserves evidence, identifies the responsible investigator, protects confidential information, and sets a review timetable. Indicators may include inconsistent accounts, unusual timing, repeated claims, altered documents, links to known participants, or loss patterns inconsistent with the insured’s circumstances. Automated scoring can prioritize cases, but it should not replace professional judgment.

Ethical fraud management requires fair treatment, proportional investigation, privacy protection, and an opportunity for the claimant to respond where appropriate. Decisions must not be based on protected characteristics or unreliable proxies. Excessive suspicion can delay legitimate claims and damage trust; insufficient investigation can transfer fraudulent costs to honest policyholders.

6. Recoveries: Subrogation, Salvage and Contribution

The gross claim cost is not always the insurer’s final economic cost. Recoveries may arise from subrogation against a responsible third party, salvage of damaged property, contribution from another insurer, deductible amounts, refunds, or contractual indemnities.

Subrogation allows an insurer, after paying a claim, to pursue rights the insured may have against a responsible third party, subject to applicable law and policy terms. Claims handlers must preserve limitation dates, liability evidence, expert reports, invoices, and communications. The insured should not be disadvantaged by poorly coordinated recovery action.

Salvage refers to the residual value of damaged property or components. It requires valuation, custody, disposal controls, and appropriate crediting to the claim file. Contribution arises where more than one policy responds to the same loss. The insurer must apply relevant contribution rules without allowing coordination disputes to delay a valid payment.

Recovery estimates should not be treated as certain merely because a recovery is theoretically possible. Finance and actuarial functions need information about whether a recovery is probable, measurable, disputed, or contingent. Claims systems should distinguish gross incurred amounts from recoveries and net incurred amounts.

7. Reinsurance as an Operational Interface

Reinsurance transfers part of an insurer’s risk to another insurer or reinsurer. It does not remove the primary insurer’s obligation to its policyholder. Consequently, the claims department remains responsible for correct and timely policyholder service even when a loss is recoverable from a reinsurer.

7.1 Treaty and facultative arrangements

Treaty reinsurance applies automatically to a defined portfolio when risks meet the treaty terms. Common structures include proportional arrangements, in which premium and losses are shared according to an agreed percentage, and non-proportional arrangements, in which the reinsurer responds above a retention or within specified layers.

Facultative reinsurance is negotiated for an individual risk or a specific exposure. It is often used for large, unusual, or hazardous risks that fall outside treaty capacity or require special terms. Facultative administration demands evidence of the offer, acceptance, effective dates, subjectivities, limits, retention, exclusions, and claims cooperation provisions.

7.2 Cession and claims records

A cession record links the underlying policy and claim to the relevant reinsurance contract. It should identify the ceded percentage or layer, retention, reinsurer, currency, premium, loss amount, applicable limits, reinstatement provisions, and notices sent. Errors in dates, policy identifiers, or attachment points can cause a valid recovery to be rejected.

The claims and reinsurance teams must communicate at defined thresholds. Large-loss notifications, reserve changes, coverage disputes, litigation, catastrophe events, and settlement proposals may trigger contractual notice or cooperation requirements. Notice should be timely, complete, and consistent with the underlying claim record.

Reinsurance recoverables are assets or expected inflows whose recognition depends on contract terms, collectability, and the applicable reporting framework. They should not be used to conceal weak primary reserving. A claim can be correctly reserved at its gross amount while the reinsurance recoverable is separately assessed.

8. Interfaces with Finance, Actuarial and Regulatory Reporting

Claims generate accounting entries for paid losses, outstanding liabilities, expenses, recoveries, reinsurance assets, and cash movements. Finance requires reconciled data between claim systems, payment systems, general ledgers, and bank records. Unreconciled suspense items and manual journals are important control risks.

Actuaries use claims triangles, exposure data, payment patterns, case reserve development, claim counts, severity, inflation assumptions, and settlement practices to estimate ultimate liabilities. Claims data must therefore be coded consistently. Changes in claims handling policy, legal environment, reserving philosophy, or settlement speed can distort historical comparisons and must be communicated to actuarial teams.

Regulatory reporting may require information on written premium, incurred claims, outstanding liabilities, solvency measures, large exposures, complaints, fraud, related-party transactions, or reinsurance concentration. Definitions and reporting dates must be controlled. A figure may be correct in the claims system but incorrect for a regulatory return if it uses a different basis, scope, currency, or recognition rule.

A robust reconciliation framework compares, at agreed intervals:

• claim counts and amounts between operational and financial systems;
• gross claims, recoveries, and reinsurance recoverables;
• opening balances, movements, and closing reserves;
• paid amounts with bank and ledger records; and
• reported figures with source-level samples.

Differences should be investigated, documented, approved, and corrected through controlled processes.

9. Technology, Data and Automation

Modern claims platforms integrate policy administration, document management, payment authorization, workflow, analytics, and reinsurance modules. Application programming interfaces can reduce duplicate entry, while rules engines can verify policy status, deductibles, limits, and referral triggers. Optical character recognition and natural-language tools can extract information from invoices and medical or repair documents.

Artificial intelligence may support triage, anomaly detection, reserve suggestions, and document classification. However, automation creates risks involving poor data, model bias, explainability, cybersecurity, privacy, and inappropriate denial or delay. High-impact decisions should have human review, especially where coverage is disputed, the customer is vulnerable, or the consequence is significant.

Useful controls include role-based access, segregation of duties, audit logs, encryption, data retention schedules, model validation, exception queues, and disaster recovery. Automation should improve consistency and speed without eliminating accountability.

10. An Integrated Illustrative Case

Background

Harborline Insurance provides commercial property cover to a food-processing company. The policy includes fire and machinery breakdown cover, a deductible, a business-interruption limit, and a proportional treaty arrangement. A separate facultative placement covers a high-value refrigeration system.

Situation

A fire damages the refrigeration plant and interrupts production. The insured reports the loss two days later. The policy administration record shows that an endorsement increasing the machinery limit was agreed before the fire but entered into the system after the loss. A supplier may have contributed to the equipment failure. The initial estimate is substantial, and one invoice submitted by the insured appears inconsistent with earlier records.

Analysis

The claim team first reconstructs the policy version and verifies the endorsement’s effective date rather than relying on the data-entry date. The machinery damage falls within the insured peril, subject to the deductible and applicable sub-limit. Business interruption requires analysis of the indemnity period, saved expenses, production records, and the causal connection between physical damage and lost income.

Because the loss exceeds the treaty notification threshold and may affect the facultative placement, the reinsurance team sends a notice containing the policy, loss circumstances, preliminary reserve, and relevant contract references. The notice is updated as the reserve changes.

A provisional case reserve is established for property damage, business interruption, adjustment expenses, and likely defense or expert costs. The actuarial function is informed that the claim may become a large-loss development item. The questionable invoice is referred for specialist investigation, but payment of undisputed amounts is not automatically suspended.

The claims team preserves damaged equipment, obtains engineering evidence, and examines the supplier contract. Potential subrogation is recorded separately from the primary reserve. Salvage value is assessed for recoverable components. Finance reconciles approved payments with the ledger, while the reinsurance team separately calculates the expected recoverable under the facultative and treaty terms.

Approach and outcome

The insurer accepts the covered portion of the claim, pays undisputed property damage after applying the deductible, and continues to assess business interruption. The invoice is found to contain an inflated component; the unsupported amount is excluded after the insured is given an opportunity to explain. Engineering evidence supports a recovery action against the supplier. The cession record is corrected to reflect the endorsement and the applicable facultative limit.

Learning points

The case demonstrates that policy version control, claims investigation, reserving, fraud referral, recovery management, and reinsurance notification must operate together. It also shows why a suspicion should lead to proportionate investigation rather than automatic repudiation, and why gross claim liability must be separated from expected recoveries.

11. Challenges, Risks and Common Mistakes

Common failures include using an outdated policy schedule, treating system entry date as the effective date, failing to record verbal decisions, closing claims before all liabilities are known, confusing gross and net reserves, and delaying reinsurance notification. Other risks arise from duplicate claim records, inconsistent coding, unauthorized reserve changes, inadequate segregation between approval and payment, and weak controls over reopened claims.

Operational pressure can produce undesirable incentives. Staff may be rewarded for rapid closure, low settlement values, or reduced referral volumes without balancing measures for fairness, accuracy, complaints, and later reserve development. Management information should therefore combine speed, cost, quality, customer outcomes, control exceptions, and long-term development.

Data quality is a persistent limitation. Historical claims data may reflect earlier definitions, system migrations, changing legal rules, or different settlement practices. Analytical conclusions should be adjusted for such breaks in continuity. No system can substitute for legal interpretation, professional judgment, or clear governance.

12. Governance, Ethics and Professional Responsibility

Claims decisions affect financial security and institutional trust. Governance requires clear authority, documented reasons, conflict-of-interest controls, complaint and appeal mechanisms, independent review, and records that can withstand internal and external scrutiny. Confidential health, financial, and identity information must be accessed only for legitimate purposes and protected throughout its lifecycle.

Fair treatment means applying policy terms consistently while recognizing legitimate differences in evidence and circumstance. It does not mean paying every claim or rejecting every doubtful claim. It requires accurate communication, reasonable investigation, timely decisions, and a genuine opportunity to correct errors.

Managers are responsible not only for individual claim outcomes but also for system design. They must ensure that incentives, technology, outsourcing arrangements, vendor controls, and reporting practices support lawful and ethical conduct.

13. Emerging Directions and Best Practice

Claims operations are moving toward integrated data platforms, real-time notifications, parametric and event-based products, remote inspection, digital payments, predictive severity models, and more granular reinsurance analytics. These developments may reduce friction and improve early intervention, but they also increase dependence on data governance and model oversight.

Best practice is characterized by:

• a single controlled view of policy and claim history;
• version-controlled contracts and auditable amendments;
• proportionate triage and investigation;
• disciplined gross, recovery, and reinsurance accounting;
• documented reserve authority and independent review;
• timely, accurate treaty and facultative notices;
• reconciliations across claims, finance, actuarial, and regulatory systems;
• human oversight of consequential automated decisions; and
• performance measures that balance efficiency, fairness, accuracy, and customer outcomes.

Chapter Summary

Claims are integrated operational events rather than isolated transactions. Policy administration supplies the authoritative contract record needed to verify eligibility, coverage, limits, exclusions, and effective dates. Claims operations then move through notification, triage, investigation, reserving, decision, payment, recovery, and closure, with the possibility of reassessment as facts develop.

Case reserves measure known unpaid claims, while IBNR addresses losses incurred or developing outside fully recognized case estimates. Fraud referrals must be evidence-based and fair. Subrogation, salvage, contribution, and other recoveries reduce net cost but should be assessed separately from gross liability. Reinsurance requires accurate treaty and facultative records, timely notices, and disciplined calculation of recoverables.

Claims data supports finance, actuarial analysis, and regulatory reporting only when definitions, coding, reconciliations, and reporting bases are controlled. Digital tools can improve speed and consistency, but privacy, bias, cybersecurity, explainability, and human accountability remain essential. Effective managers design these interfaces so that customer service, financial accuracy, risk transfer, and regulatory integrity reinforce one another.

Key Terms

Case reserve: An estimate of unpaid amounts relating to a reported claim.

Cession: The portion of an insurer’s risk or claim transferred to a reinsurer.

Contribution: Allocation of a loss among insurers covering the same interest or event.

Facultative reinsurance: Reinsurance negotiated for an individual risk or specified exposure.

First notification of loss (FNOL): The initial report of an insured event to the insurer.

IBNR: Estimated liability for losses incurred but not reported, including relevant development.

Proportional reinsurance: Reinsurance in which premium and losses are shared by an agreed proportion.

Non-proportional reinsurance: Reinsurance responding when losses exceed specified retention or attachment points.

Policy version control: Preservation and management of the contract terms effective at particular times.

Proximate cause: The legally relevant or dominant cause used in determining coverage in appropriate cases.

Recovery: An amount received or expected from a third party, salvage, contribution, or another source.

Reserve development: Change in estimated claim liability as information and experience emerge.

Salvage: Value recovered from damaged insured property or its components.

Subrogation: Insurer pursuit of a responsible third party after indemnifying the insured.

Treaty reinsurance: An arrangement automatically covering risks within defined portfolio terms.

Reinsurance recoverable: Amount expected to be received from a reinsurer for covered losses or expenses.

Coverage verification: Examination of policy validity, insured status, event, exclusions, conditions, and limits.

Claims triage: Classification of claims according to complexity, urgency, value, and risk.

Review Questions

Short Answer Questions

1. Why is the policy version effective on the date of loss important in claims administration?

2. Distinguish a case reserve from an IBNR reserve.

3. What is the purpose of a reinsurance cession record?

4. Why should a fraud referral not be treated as proof of fraud?

5. Identify two important reconciliations between claims and finance systems.

Long Answer Questions

1. Explain the complete operational relationship between policy administration and claims settlement.

2. Discuss the principles and governance requirements of claims reserving.

3. Compare treaty and facultative reinsurance and explain their administrative implications.

4. Examine how claims information supports actuarial, financial, and regulatory reporting.

5. Discuss the ethical and governance risks associated with automated claims decision-making.

Analytical / Application Questions

1. A policy endorsement was agreed before a loss but entered into the administration system afterward. Design a process for determining the applicable coverage and documenting the decision.

2. A large claim has a high case reserve, possible supplier liability, suspected invoice inflation, and both treaty and facultative reinsurance. Explain how the insurer should coordinate investigation, reserving, recovery, fraud referral, and reinsurance notification.

3. Claims data shows improving closure rates but rapidly increasing reserve development and complaints. Analyze possible explanations and recommend management actions.

22. Multiple Choice Questions with Answers

Question 1

Which record is most authoritative for determining the policy terms applicable on the date of loss?

A. The claimant’s verbal description of the policy

B. The controlled policy version effective on the date of loss

C. The date on which an endorsement was entered into the system

D. An informal email from a broker

Correct Answer: B. The controlled policy version effective on the date of loss

Question 2

What is the principal purpose of a case reserve?

A. To estimate unpaid amounts for a known reported claim

B. To record only amounts already paid

C. To estimate future premium income

D. To calculate the insurer’s total investment return

Correct Answer: A. To estimate unpaid amounts for a known reported claim

Question 3

Which statement best describes IBNR?

A. A reserve used only for rejected claims

B. A reserve for commissions payable to intermediaries

C. An estimate for incurred losses not fully captured through reported claims

D. A record of salvage already sold

Correct Answer: C. An estimate for incurred losses not fully captured through reported claims

Question 4

A fraud referral should normally be treated as:

A. Automatic evidence requiring claim denial

B. An investigative signal requiring proportionate review

C. A substitute for coverage verification

D. A reason to stop all undisputed payments

Correct Answer: B. An investigative signal requiring proportionate review

Question 5

What is the main distinction between treaty and facultative reinsurance?

A. Treaty applies automatically to defined portfolios, while facultative is negotiated for an individual risk

B. Treaty applies only to life insurance, while facultative applies only to property insurance

C. Treaty is always proportional, while facultative is always non-proportional

D. Treaty transfers claims administration entirely to the reinsurer

Correct Answer: A. Treaty applies automatically to defined portfolios, while facultative is negotiated for an individual risk

Question 6

Why must gross claim liability and reinsurance recoverable generally be assessed separately?

A. Because reinsurance eliminates the insurer’s policyholder obligation

B. Because a possible reinsurance recovery does not automatically reduce the primary claim liability

C. Because reinsurers determine all primary reserves

D. Because recoveries are never recorded in financial reporting

Correct Answer: B. Because a possible reinsurance recovery does not automatically reduce the primary claim liability

Question 7

Which activity is most directly associated with subrogation?

A. Pursuing a responsible supplier after indemnifying the insured

B. Calculating the policy’s original premium

C. Updating the claimant’s postal address

D. Applying a waiting period to a new policy

Correct Answer: A. Pursuing a responsible supplier after indemnifying the insured

Question 8

A claims system shows fewer open claims, but complaints and later reserve increases are rising. What is the most appropriate management response?

A. Assume performance has improved because closure is higher

B. Stop reviewing closed claims

C. Investigate whether claims are being closed prematurely or inadequately assessed

D. Delete reopened claims from performance reports

Correct Answer: C. Investigate whether claims are being closed prematurely or inadequately assessed

Question 9

Which control is most important when using AI to support high-impact claims decisions?

A. Removing all human review

B. Using only historical decisions without validation

C. Ensuring explainability, bias monitoring, and appropriate human oversight

D. Allowing the model to change policy terms automatically

Correct Answer: C. Ensuring explainability, bias monitoring, and appropriate human oversight

Question 10

Why are consistent claims coding and definitions important to actuarial analysis?

A. They eliminate the need for professional judgment

B. They allow historical claims experience to be compared more reliably

C. They guarantee every claim will be fraudulent if mis-coded

D. They transfer reserve responsibility from the insurer to the customer

Correct Answer: B. They allow historical claims experience to be compared more reliably