Clearing systems in Direct Claim Settlement

Direct Claim Settlement (DCS) is a process of settling claims in which a claimant may choose between reporting damages to the perpetrator’s insurer or to their own insurer. DCS is organised within one group of insurance. There are different models determining the scope of damages covered by DCS, rules and methods of clearing accounts between the insurers. One of the most essential elements of each and every model are rules of determining the value of claim recourse between the perpetrator’s insurer and the claimant’s insurer. In the article, the authors focus on the rules of clearing accounts between the insurers in the MTPL insurance market. In particular, the authors analyse the consequences of adapting different clearing systems, especially real or lump sum cost, and their financial impact on hypothetical insurers, the whole market, and finally on the risk assessment performed by every single insurer. Last but not least, the criteria enabling a comparison and evaluation of different clearing systems are defined.