The Association of Insurance and Reinsurance Run-Off Companies has launched an arbitration procedure designed to expedite small and “less-complicated” claims between insurers and reinsurers.
The new Dispute Resolution Procedure was developed in response to “broad industry concerns over the efficacy of arbitration as a swift, cost-effective alternative dispute resolution mechanism,” said Trish Getty, chief executive officer and executive director of AIRROC.
Ms. Getty cited the high costs and “long, drawn-out process” currently involved in arbitrating disputes. She said many claims have not yet been paid by reinsurers because of disagreements over one or two small issues. But these disputes, she noted, are taking as much time to administer and resolve as large, complicated claims.
The DRP will involve a single arbitrator, a pre-arranged discounted fee structure of $150 per hour, and no discovery or live hearing testimony without the parties’ consent, AIRROC said in a statement.
Speaking to the $150 hourly rate, Ms. Getty explained that the cost of an arbitrator is usually about $500 an hour. “It costs maybe as much today to arbitrate as it does to go through litigation,” she said.
Regarding the discounted rate DRP arbitrators have agreed to, she said, “it’s a matter of doing the math.”
The arbitrator will use telephone meetings, submitted briefs and documents, and oral arguments at the arbitrator’s discretion or when requested by both parties, AIRROC explained. After the evidence is presented, the arbitrator will issue a decision within 30 days.
AIRROC said the DRP will only use arbitrators who have at least 10 years of employment by an insurer or reinsurer, or are certified by the AIDA Reinsurance and Insurance Arbitration Society, to ensure proper competence and experience. Disputants will agree on an arbitrator from the AIRROC list, the group noted.
If no agreement is reached, the DRP randomly generates 15 names from the list, and each party selects more than half of the names from that group–at which point one of the overlapping arbitrators is selected for the dispute.
Ms. Getty said DRP currently has 25 approved arbitrators, 19 of which are ARIAS-certified.