Assignment 6 - claims

A special investigation that may enable an insurer to recover loss payment amounts (paid to the insured) for a loss caused by a negligent third party is a(n) a.Subrogation investigation. b.Accident scene investigation. c.Property damage investigation. d.Insured/witness investigation.

a.Subrogation investigation.

Actual cash value (ACV)

Cost to replace property with new property of like kind and quality less depreciation.

Producer

Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both.

All of the following are factors in determining the replacement cost of real property, EXCEPT: Select one: A. Type and quality of the construction B. Actual cash value of the property C. Construction cost per square foot D. Square footage of the property

B. Actual cash value of the property

Damages for the loss of the ability to bear children are a form of Select one: A. Special damages. B. General damages. C. Out-of-pocket damages. D. Punitive damages.

B. General damages.

The value of an insurance contract in the event of a claim Select one: A. Is purely financial. B. Includes peace of mind. C. Is purely remedial. D. Includes the opportunity to profit.

B. Includes peace of mind.

A goal of the claims function is to support the profit goal of the Select one: A. Insured. B. Insurer. C. Claimant. D. Policyholder.

B. Insurer.

In the claim evaluation process, specific, out-of-pocket expenses are called Select one: A. General damages. B. Special damages. C. Negotiated damages. D. Compensatory damages.

B. Special damages.

Bill's three-year-old stereo was completely destroyed in a covered loss. Its expected useful life was ten years. Its replacement cost is $600. Its actual cash value (ACV) is Select one: A. $ 60. B. $180. C. $420. D. $600.

C. $420.

An insurance contract is designed to be all of the following in the event of a claim, EXCEPT: Select one: A. A means to afford peace of mind to the insured B. A way to restore a claimant to pre-loss condition C. A means to provide a profit to the insured D. A financial mechanism that can benefit policyholders and other claimants

C. A means to provide a profit to the insured

A person or entity that would suffer a financial loss if property were damaged has Select one: A. A renewable interest. B. A contractual interest. C. An insurable interest. D. A discretionary interest.

C. An insurable interest.

Loss reserves are funds held by an insurer to pay claims for losses that have occurred but have not yet been settled. Such funds assigned to an individual claim create a Select one: A. Damage reserve. B. Claim reserve. C. Case reserve. D. Suit reserve.

C. Case reserve.

One way for claim managers to help maintain an insurer's underwriting profit is to Select one: A. Achieve the lowest settlements possible. B. Grant claim staff complete autonomy as to spending decisions. C. Establish appropriate spending policies. D. Retain high-priced experts whenever possible.

C. Establish appropriate spending policies.

Damages for pain and suffering are a form of Select one: A. Punitive damages. B. Special damages. C. General damages. D. Out-of-pocket damages.

C. General damages.

In a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as Select one: A. Punitive damages. B. Special damages. C. General damages. D. Secondary damages.

C. General damages.

A goal of the claims function is to support the profit goal of the Select one: A. Policyholder. B. Insured. C. Insurer. D. Claimant.

C. Insurer.

Lou is a claim manager at a small property-casualty insurance company. Lou takes pride in the fact that because of his leadership, his company has gained a public reputation for resisting legitimate claims. Ultimately, this reputation Select one: A. Satisfies the mandate of regulators. B. Supports his company's profit goals. C. Undermines the effectiveness of his company's advertising. D. Makes the company's policies more marketable.

C. Undermines the effectiveness of his company's advertising.

An insurance contract is designed to be all of the following in the event of a claim, EXCEPT: Select one: A. A financial mechanism that can benefit policyholders and other claimants B. A means to afford peace of mind to the insured C. A way to restore a claimant to pre-loss condition D. A means to provide a profit to the insured

D. A means to provide a profit to the insured

Which one of the following statements is true regarding laws prohibiting unfair claims practices? Select one: A. The laws apply only to actions by the insurer and not by individual claim representatives. B. The federal government has enacted an unfair claims practices law to which all states must adhere, unless their law is more stringent. C. The laws specifically list acceptable actions or processes that insurers may take. D. Each state that has such a law will usually list insurer or claim representative practices that are prohibited.

D. Each state that has such a law will usually list insurer or claim representative practices that are prohibited.

One way for claim managers to help maintain an insurer's underwriting profit is to Select one: A. Retain high-priced experts whenever possible. B. Achieve the lowest settlements possible. C. Grant claim staff complete autonomy as to spending decisions. D. Establish appropriate spending policies.

D. Establish appropriate spending policies.

Damages for pain and suffering are a form of Select one: A. Punitive damages. B. Out-of-pocket damages. C. Special damages. D. General damages.

D. General damages.

Which one of the following is a negotiation process in which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement? Select one: A. Arbitration B. Appraisal C. Mini-trial D. Mediation

D. Mediation

Damages

Money claimed by, or a monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible.

Compensatory damages represent Select one: A. Actual harm suffered. B. Damages to deter others from committing wrongful acts. C. Out-of-pocket expenses. D. Non-economic loss.

A. Actual harm suffered.

Jerry is an experienced claim adjuster who handles claims for Jackson Insurance Company during hurricane season when Jackson's staff adjusters need assistance. Jerry is Select one: A. An independent adjuster. B. A public adjuster. C. A hurricane adjuster. D. A third-party adjuster.

A. An independent adjuster.

Anyone who submits a claim to an insurer may be called a Select one: A. Claimant. B. Claim producer. C. First-party claimant. D. Third-party claimant.

A. Claimant.

Depreciation

The reduction in value caused by the physical wear and tear or technological or economic obsolescence of property.

Mediation

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a mutually agreeable settlement.

Arbitration

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which can be final and binding.

Mini-trial

An alternative dispute resolution method by which a case undergoes an abbreviated version of a trial before a panel or an adviser who poses questions and offers opinions on the outcome of a trial, based on the evidence presented.

Summary jury trial

An alternative dispute resolution method by which disputing parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel of mock jurors who decide the case.

Independent Adjuster

An independent claims representative who handles claims for insurers for a fee.

Reservation of rights letter

An insurer's letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it.

Third-party administrator (TPA)

An organization that provides administrative services associated with risk financing and insurance.

What valuation method is generally used for property such as fine arts, antiques, and collections? a.Actual cash value b.Agreed value c.Replacement cost d.Depreciation cost

b.Agreed value

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party who points out the weaknesses in each argument or in the evidence presented, proposes solutions, and helps the participants reach a mutually agreeable settlement is called a.Appraisal. b.Mediation. c.Mini-trial. d.Summary jury trial.

b.Mediation.

All of these are key aspects of liability insurance claims, EXCEPT: a.Determining the amount of damages b.Valuation of damaged property c.Verifying coverage d.Concluding the claim

b.Valuation of damaged property

Replacement cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

Loss adjustment expense (LAE)

The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy.

Salvage rights

The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss or a constructive total loss.

Subrogation

The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.

Good-faith claims handling consists of these elements:

Thorough, timely, and unbiased investigation Complete and accurate documentation Fair evaluation Good-faith negotiation Regular and prompt communication Competent legal advice Effective claim management

Which one of the following types of claims personnel is often contracted by organizations with self-insurance plans? a.Third-party administrators b.Public adjusters c.Producers d.Independent adjusters

a.Third-party administrators

By ensuring fair claim settlement, claims representatives prevent any unnecessary increase in the cost of insurance and subsequent reduction in the insurer's a.Underwriting profit. b.Investment income. c.Operating expenses. d.Payment of legitimate claims.

a.Underwriting profit.

"Every claim will be acknowledged within twenty-four hours" is an example of which one of the following quality measures? a.Customer satisfaction b.Qualitative claims audit c.Claims Department best practice d.Insurance regulation

c.Claims Department best practice

third-party claim

A demand against an insured by a person or organization other than the insured or the insurer, seeking to recover damages that may be payable by the insured's liability insurance.

first-party claim

A demand by an insured person or organization seeking to recover from its insurer for a loss that its insurance policy may cover.

Special Damages

A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages.

Appraisal

A method of resolving disputes between insurers and insureds over the amount owed on a covered loss.

Agreed value method

A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss.

General Damages

A monetary award to compensate a victim for losses, such as pain and suffering, that does not involve specific, measurable expenses.

claimant

A party that makes a claim and that can be either a first-party claimant or a third-party claimant.

Punitive damages (exemplary damages)

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages.

Compensatory damages

A payment awarded by a court to reimburse a victim for actual harm.

Claims representative

A person responsible for investigating, evaluating, and settling claims.

claims representative

A person responsible for investigating, evaluating, and settling claims.

Loss Ratio

A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses.

Nonwaiver agreement

A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy.

A liability loss has the following damages: Medical expenses: $ 10,000 Damages for disfigurement: $50,000Damages for pain and suffering: $100,000 What is the amount of special damages? Select one: A. $ 10,000 B. $ 50,000 C. $100,000 D. $160,000

A. $ 10,000

Which one of the following statements about good faith negotiations is correct? Select one: A. Claim representatives can use arbitration clauses to resolve disputes over the settlement amount. B. Settlement negotiations should begin before the claim is evaluated. C. Claim representatives should always wait for a demand before presenting an offer to settle. D. Claim representatives are expected to make unrealistic offers when confronted with outrageous demands.

A. Claim representatives can use arbitration clauses to resolve disputes over the settlement amount.

Which one of the following is an example of general damages? Select one: A. Compensation for disfigurement B. Prescription costs C. Hospital expenses D. Lost wages

A. Compensation for disfigurement

If a claim representative's investigation determines that no coverage applies for a liability claim, the insurer will Select one: A. Deny the claim. B. Settle the claim and then seek reimbursement from the insured. C. Pay for the defense but not the settlement of the claim. D. Try to quickly settle the claim.

A. Deny the claim.

The processing of almost every claim involves which one of the following activities? Select one: A. Determining the amount of damages or extent of loss B. Sending a reservation of rights letter to the insured C. Salvaging D. Subrogating

A. Determining the amount of damages or extent of loss

If an insured's house burns to the ground due to faulty wiring, the most difficult part of the claim handling process will probably be Select one: A. Determining the amount of damages. B. Determining the cause of loss. C. Determining insurable interest. D. Verifying coverage.

A. Determining the amount of damages.

In an insurance transaction, the insured is designated the Select one: A. First party. B. Second party. C. Third party. D. Fourth party.

A. First party.

Most bad-faith claims arising out of contracts are insurance-related. All of the following explains why this is the case, EXCEPT: Select one: A. In comparison to other contracts, insurance contracts require a low standard of conduct. B. Insurance contracts involve the public interest and unequal bargaining power. C. Insurers have an implied duty of good faith and fair dealing when settling claims. D. Insurers generally control claim investigation, evaluation, negotiation, and settlement.

A. In comparison to other contracts, insurance contracts require a low standard of conduct.

All of the following are true, EXCEPT: Select one: A. Insurers that are merely negligent in their claim handling face no consequences, regardless of jurisdiction. B. Bad faith might fall somewhere between simple error and outright fraud. C. Some courts look for behavior on the part of the insurer which is arbitrary, reckless, or indifferent or involved intentional disregard. D. Courts attempt to determine the insurer's state of mind when establishing gross misconduct.

A. Insurers that are merely negligent in their claim handling face no consequences, regardless of jurisdiction.

Incurred losses (including loss adjustment expenses) divided by earned premium is the formula for Select one: A. Loss ratio. B. Combined ratio. C. Underwriting profit ratio. D. Expense ratio.

A. Loss ratio.

The best description of a third-party claim is a claim Select one: A. Made against the policyholder by someone to whom the policyholder may be liable. B. Made by the insurer against the policyholder. C. Made by the policyholder against the insurer. D. Made by the liable party against the policyholder.

A. Made against the policyholder by someone to whom the policyholder may be liable.

Work on a new claim begins for the claim representative upon receipt of the notice of loss. The representative obtains initial information and verifies coverage. Next, the representative should Select one: A. Set a loss reserve. B. Make an offer to settle the claim. C. Assign the claim to defense counsel. D. Retain causation experts.

A. Set a loss reserve.

Adjuster Toni is evaluating damages in a bodily injury liability claim where she has determined that the insured is completely at fault for the accident. The claimant suffered a sprain and strain injury to his neck. His special damages total $1,500. He was out of work for a week, was disabled and prevented from performing some regular activities for a month, and attended physical therapy for six weeks. In assessing general damages, Toni should Select one: A. Use past cases which are similar as a guide. B. Multiply $1,500, the amount of special damages, by six, the number of weeks of physical therapy, and pay $9,000. C. Consider what she would want to be paid if she were in claimant's shoes. D. Multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500.

A. Use past cases which are similar as a guide.

Insurable interest

An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred.

Public Adjuster

An outside organization or person hired by an insured to represent the insured in a claim in exchange for a fee.

At year-end, SBC Insurance Company posted the following results: Incurred losses - $18 million Loss adjustment expenses - $2 million Underwriting expenses - $5 million Written premiums - $26 million Earned premiums - $24 million Based upon the company's year-end results, which one of the following represents SBC's loss ratio? Select one: A. 75% B. 83% C. 96% D. 104%

B. 83%

In property insurance claims, there is sometimes a question of whether coverage exists or not. In these situations the insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that Select one: A. The claim is in excess of the deductible. B. A coverage problem may exist. C. The policy may not be renewed due to loss frequency. D. The claim will be handled by an independent adjuster.

B. A coverage problem may exist.

An employee of an insurance company who performs some or all of the insurer's claim-handling activities is called Select one: A. An inside claim representative. B. A staff claim representative. C. A public adjuster. D. A field claim adjuster.

B. A staff claim representative.

One who offers claim handling services to insurance companies for a fee is Select one: A. A staff claim representative. B. An independent adjuster. C. A public adjuster. D. An outside claim representative.

B. An independent adjuster.

The best description of a first-party claim is a claim Select one: A. Made by the policyholder against someone to whom the policyholder may be liable. B. Made by the policyholder against the insurer. C. Made by the insurer against the policyholder. D. Made by the liable party against the policyholder.

B. Made by the policyholder against the insurer.

Actual cash value (ACV) is Select one: A. Replacement cost plus depreciation. B. Replacement cost minus depreciation. C. Agreed value minus depreciation. D. Replacement cost minus agreed value.

B. Replacement cost minus depreciation.

A liability loss has the following damages: Medical expenses: $10,000 Damages for disfigurement: $50,000 Damages for pain and suffering: $100,000 What is the amount of general damages? Select one: A. $ 60,000 B. $110,000 C. $150,000 D. $160,000

C. $150,000

Damages for the loss of the ability to bear children are a form of Select one: A. Out-of-pocket damages. B. Punitive damages. C. General damages. D. Special damages.

C. General damages.

The best description of a third-party claim is a claim Select one: A. Made by the policyholder against the insurer. B. Made by the liable party against the policyholder. C. Made against the policyholder by someone to whom the policyholder may be liable. D. Made by the insurer against the policyholder.

C. Made against the policyholder by someone to whom the policyholder may be liable.

Anyone who is not a party to an insurance contract who submits a claim against an insured is known as the Select one: A. First party. B. Claimant party. C. Third party. D. Second party.

C. Third party.

Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? Select one: A. Accuracy and completeness of data entry B. Percentage of recovery from subrogation C. Average claim settlement value by claim type D. Accurate evaluation of insured's liability

D. Accurate evaluation of insured's liability

Which one of the following statements is true regarding elements of good-faith claim handling? Select one: A. A claim file's medical bills, doctors' reports, and other information on each claimant should be in chronological order. B. Generally, the first activity of the insurer in the claim handling process involves two functions—investigating the claim and concluding the claim. C. Once contact with the insured is made, the claim representative should acknowledge and assign the claim. D. Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount.

D. Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount.

Damages for disfigurement are a form of Select one: A. Out-of-pocket damages. B. Special damages. C. Punitive damages. D. General damages.

D. General damages.

The value of an insurance contract in the event of a claim Select one: A. Includes the opportunity to profit. B. Is purely financial. C. Is purely remedial. D. Includes peace of mind.

D. Includes peace of mind.

A liability adjuster must be concerned with specific, out-of-pocket expenses when evaluating the damages being claimed. The technical term for such expenses is Select one: A. General damages. B. Measurable damages. C. Punitive damages. D. Special damages.

D. Special damages.

In liability claims, the claimant is referred to as the Select one: A. Primary party. B. First party. C. Second party. D. Third party.

D. Third party.

A covered cause of loss completely destroys a family's six-year-old pool table. The pool table would cost $2,500 to replace with a comparable (of like kind and quality) new pool table. A pool table is generally expected to be used for ten years. Explain how, as the claim representative, you would determine the covered pool table's ACV.

Feedback: You must place a value on the pool table by determining the extent of depreciation that should be considered. Because a pool table might be used for ten years and is now six years old, you estimate the depreciation from normal wear at 60 percent. Therefore, with a replacement cost of $2,500 and depreciation estimated at 60 percent, the ACV of the destroyed pool table is $1,000. A payment of $1,000 would indemnify the insured for the loss of the pool table.

A natural disaster just struck a large number of homes and businesses insured by Watkins Insurance Company. The company is receiving more claims than its staff claims representatives can handle in a timely manner. Which kind of professional would Watkins Insurance Company look to hire to make sure that it can satisfy its insureds? a.Independent adjuster b.Third-party administrator c.Producer d.Public adjuster

Feedback: a. Watkins Insurance Company would hire independent adjusters, which are independent claims representatives who handle claims for insurers for a fee. Some insurers hire independent adjusters when their staff claims representatives are too busy to handle all claims themselves.

An insurer's CEO is analyzing the organization's profitability. He sees that three years ago, the insurer's loss ratio was 0.67, while two years ago, the insurer's loss ratio was 0.70. Last year, the loss ratio was 0.75. Further analysis indicates that the Actuarial Department is pricing the insurer's products correctly and that the Underwriting Department was selecting appropriate loss exposures. This leads the CEO to focus on the Claims Department as potentially undermining the organization's profitability. Which of the following are measures the Claims Department could employ in an attempt to reduce LAE long term? a.Immediately offering the settlement payment insureds and claimants demand. b.Resisting; researching; negotiating; and, if necessary, litigating inflated settlement demands. c.Skipping claims procedures. d.None of these measures will reduce LAE long term.

Feedback: b. Resisting; researching; negotiating; and, if necessary, litigating inflated settlement demands reduces LAE long term.