What Are the 4 Stages of the Insurance Claim Cycle?
1. Claim Reporting (First Notice of Loss)
The insurance claim cycle begins when the policyholder notifies the insurance company of a loss. This step is often referred to as the “First Notice of Loss." Prompt reporting is critical because most insurance policies require claims to be filed within a reasonable timeframe.
During this stage, the insured provides essential information such as the date, time, and location of the incident, a description of what happened, and any supporting documentation (photos, police reports, medical records, or repair estimates). The insurer then assigns a claim number and a claims adjuster to investigate the matter. Clear and accurate communication at this stage can help prevent delays later in the process.
2. Investigation
Once the claim is reported, the insurance company begins its investigation. The purpose of this stage is to determine whether the loss is covered under the policy and to assess the extent of the damage.
The claims adjuster may inspect property damage, interview witnesses, review medical records, consult experts, or request additional documentation. In auto accident cases, fault may be evaluated. In property claims, the adjuster may determine whether the damage was caused by a covered peril or an excluded event.
Insurance companies must conduct a thorough and timely investigation. However, disputes often arise during this stage if coverage is questioned or if the insurer believes the damages are less extensive than claimed.
3. Evaluation and Negotiation
After completing the investigation, the insurer evaluates the claim. This involves calculating the value of the loss based on policy limits, deductibles, depreciation, and applicable exclusions.
In first-party claims, the insurer determines how much it will pay the policyholder. In third-party liability claims, negotiations may take place between the injured party and the insurer regarding settlement amounts for medical bills, lost wages, property damage, and other losses.
This stage may involve back-and-forth communication, additional documentation requests, or settlement offers and counteroffers. If both sides agree on the amount, the claim proceeds to payment. If not, the dispute could escalate to mediation, appraisal, arbitration, or litigation.
4. Resolution and Payment (or Denial)
The final stage of the insurance claim cycle is resolution. If the claim is approved, the insurance company issues payment according to the agreed-upon amount and policy terms. Payment may be made directly to the policyholder, a repair vendor, a medical provider, or a third party.
If the insurer determines the claim is not covered, it will issue a denial letter explaining the reasons. Policyholders have the right to review the explanation, provide additional evidence, or challenge the decision if they believe it is incorrect.
Once payment is issued or the claim is formally denied, the claim cycle is considered closed. However, disputes can reopen the process if new information emerges or legal action is taken.
