An insurance claim is a fortuitous event that gives rise to entitlement to an insurance benefit. Reporting the claim (and, if required, providing proof that the event qualifies as an insurable loss) is the policyholder's obligation. Once the claim is reported, the insurer initiates the so-called claims settlement process, during which a claims adjuster evaluates the entitlement to benefits and assesses the amount of the loss. If the claim is approved, the insurer pays the insurance benefit to the policyholder or the injured party. Insurance can be taken out against, for example, natural disasters, theft, and accidents.
In this article, we will walk through the steps to follow when a traffic accident has occurred. An insurance claim has been filed under a comprehensive insurance policy for a company vehicle. The insurer arranged towing and repair of the damaged vehicle through its assistance service and also provided a replacement vehicle.
How to handle this in ABRA Flexi?
Receiving an invoice
1. You receive an invoice for service work in the amount of CZK 125,000.
From an accounting perspective, vehicle repair costs are posted to accounts in account group 51 — the repair itself to account 511 – Repairs and maintenance (the provision of a replacement vehicle, for example, to account 518 – Other services), typically offset against account 321 – Trade payables.
Insurance company response
2. Based on the insurance company's response, you record an entry in other receivables representing the amount of the benefit payable by the insurer.
The entitlement to the benefit received from the insurer is posted in account group 64, typically to account 648 – Other operating income, offset against account 315 – Other receivables. Some accounting entities use account 688 – Other extraordinary income; however, this account is more appropriate for events of a truly extraordinary nature (natural disaster, fire, etc.). Compensation received from an insurer is not a taxable supply for VAT purposes — it is a settlement based on liability for damages caused.
You receive a letter from the insurance company informing you that the benefit is being paid directly to the repair shop, and on that basis you perform a set-off.
Mutual set-off
3. You perform a mutual set-off of the previous entries — invoice (for service) vs. other receivable (insurance benefit).
When performing a mutual set-off between different business partners, it is necessary to select manual set-off creation.
Open the Mutual Set-offs agenda and click the New button. Clicking it will open the following dialog:
Select the manually option, which will take you to the entry window where you select the correct movement type, partner, and amount.
Linking to a document is done using the "Match" function in the top menu — the same process as linking a bank transaction to a document. The first entry will therefore represent full payment of the other receivable (OR) from the insurer.
You then need to create the counterparty side of the set-off using the same procedure, representing payment of the service invoice in the amount of the insurance benefit.
Select the manually option, which will take you to the entry window where you select the correct movement type, partner, and amount. Note that the set-off amount entered here should not be the full invoice amount, but only the amount of the insurance benefit.
Linking to a document is done using the "Match" function in the top menu.
You will then be informed of the payment amount applied to the document and will need to select the partial payment option.
WARNING!!!!
Whether both entries are included in the "Agreement on Mutual Set-off of Receivables" print form is controlled by the set-off number fields.
You can open the print report selection by clicking the printer icon in the top menu of the Mutual Set-offs agenda.
Once the entries in Mutual Set-offs are complete, the "other receivable" will be marked as fully paid, and the service invoice will have a remaining balance equal to the VAT amount, which you will settle with the supplier in the usual way.
Most insurance policies include a so-called deductible (excess). This means the insurer does not cover the full loss but only the amount exceeding the defined threshold. In practice, if the deductible is to be claimed from the employee involved in the insured event, you will post it as a receivable to account 335. If the employee's fault has not been established, post it to repair costs.