FIL 355 Chapter 6: Claims

Which one of the following statements regarding authority levels is true Choose one answer. A. Claim information systems might allow different authority levels for different types of employees. B. If a claim requires little reserves, authority levels ensure that qualified personnel handle those reserves. C. Generally, each claim representative sets his or her own authority level depending on the type of claim. D. Authority levels are used as a training tool for those employees that are making errors when changing information.

A. Claim information systems might allow different authority levels for different types of employees.

In the claim function, supporting the insurer's profit goal is accomplished through Choose one answer. A. Controlling expenses. B. Resisting meritorious claims. C. Underpaying claims. D. Providing prompt, equitable service the policyholders

A. Controlling expenses.

In the claim function, supporting the insurer's profit goal is accomplished through Choose one answer. A. Controlling expenses. B. Resisting meritorious claims. C. Underpaying claims. D. Providing prompt, equitable service the policyholders.

A. Controlling expenses.

Which one of the following statements is correct with respect to state insurance regulators' involvement in the claim handling process? Choose one answer. A. Enforcement of controls by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or similar legislation. B. All states currently license claim representatives, and standard procedures and uniform regulation are in place for doing so. C. Market conduct investigations that are periodically performed by insurance regulators are limited to the review of claim practices. D. Consumer complaints to state insurance departments about claim service typically result in the loss of the claim representative's license.

A. Enforcement of controls by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or similar legislation.

In addition to claims personnel, internal claim audits may be conducted by personnel from other departments, such as Choose one answer. A. Human resources and training. B. Premium audit and accounting. C. Information systems and information technology. D. Vendor management and finance.

A. Human resources and training.

When the investigation has been completed and all documentation has been received, the claim representative must decide whether to pay the claim or deny it. Which one of the following statements is correct with respect to this element of claim handling? Choose one answer. A. If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation. B. To deny a claim, a claim representative need only verbally inform the insured that no payment will be made. C. Because of the variety of alternative dispute resolution methods available, very few claims are concluded through litigation. D. State insurance regulations typically prohibit an insurer from advising an insured of the reason for a claim denial.

A. If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation.

Riko is an automobile claim representative who has been assigned a claim submitted by John. John owns a Honda Civic, which is insured in his name for liability, collision, and comprehensive coverage on a Personal Auto Policy (PAP). He is the only named insured on the policy. John lives with his parents and his sister, Carla. One Saturday, while John is asleep, Carla borrows his car to run errands. Unfortunately she backs into the concrete base of a sign at the mall, damaging the vehicle. Riko confirms that the Honda is the covered vehicle, that it is insured against collision, and that the loss occurred during the policy period. Which one of the following will she most likely determine next? Choose one answer. A. Is Carla covered as a driver of the damaged vehicle? B. Does any other insurance apply to this loss? C. Is the mall parking lot a covered location? D. Does the loss meet the policy definition of "collision"?

A. Is Carla covered as a driver of the damaged vehicle?

Which one of the following best describes the purpose of authority levels? Choose one answer. A. Limiting reserve and payment amounts B. Centralizing decision making C. Minimizing inaccuracies D. Avoiding stair stepping

A. Limiting reserve and payment amounts

Which one of the following statements is true concerning claim information users? Choose one answer. A. Producers must have policyholder loss information to prepare renewal policies properly. B. Actuaries, by reviewing claim files, can detect material aspects of an insured's loss exposures since the policy was first underwritten. C. Marketing establishes reserves for IBNR losses and projects development of claims for which the reserves may change over the life of the claim. D. Actuaries evaluate losses that sometimes reveal an undetected loss exposure.

A. Producers must have policyholder loss information to prepare renewal policies properly.

The question "Is the location of the loss covered?" is a part of the framework for coverage analysis because the location where the loss occurred must be within the policy's territorial limits. The PAP includes which one of the following locations in the definition of policy territory? Choose one answer. A. Puerto Rico B. Europe C. Mexico D. Bermuda

A. Puerto Rico

Supervisors and managers often use a diary or suspense when handling claims as Choose one answer. A. Reminder systems to review claim files. B. Guidelines for how certain claim handling tasks should be performed. C. Records of all activities and analyses that occur regarding a particular claim. D. Monitors for possible errors in claim practices

A. Reminder systems to review claim files.

To determine if a person is a named "insured" under a policy, the claims representative would generally need to review Choose one answer. A. The Declarations section and Definitions section. B. The Declarations section and the Exclusions section. C. The Definitions section and the Insuring Agreement. D. The Condition section and the Exclusions section.

A. The Declarations section and Definitions section.

Benjamin has his home insured with Westfork Mutual under an HO-3 policy for $100,000. He is the named insured on the policy. There are three other residents of the home: Maria, Benjamin's mother; Daniel, his nephew; and Cian, a family friend. An accidental fire causes damage to the home and to personal property of all four occupants. Benjamin reports the loss to Westfork and Fatima, a claim representative, is assigned the claim. Which one of the following will most likely be Fatima's principal concern when analyzing coverage for the loss? Choose one answer. A. Whether Maria's, Daniel's, and Cian's property would be covered B. Whether fire is a covered cause of loss under the H0-3 policy C. Whether any policy exclusions preclude coverage for the loss D. Whether the limit of insurance is sufficient to cover the damage

A. Whether Maria's, Daniel's, and Cian's property would be covered

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? Choose one answer. A. 75% B. 83% C. 96% D. 104%

B. 83%

An insurance company employee who investigates the scene of a loss; meets with insureds, claimants, lawyers, and others; and inspects damage is most accurately called Choose one answer. A. A third-party administrator. B. A field claim representative. C. An independent adjuster. D. An adjusting agent.

B. A field claim representative.

If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire Choose one answer. A. An independent adjuster. B. A public adjuster C. A senior claim representative. D. A public defender.

B. A public adjuster

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

B. A staff claim representative.

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? Choose one answer. A. Percentage of recovery from subrogation B. Accurate evaluation of insured's liability C. Average claim settlement value by claim type D. Accuracy and completeness of data entry

B. Accurate evaluation of insured's liability

Worthley Insurance Company uses claim audits to ensure compliance with best practices. These audits evaluate both quantitative and qualitative factors. Which one of the following factors that Worthley evaluates is a qualitative factor? Choose one answer. A. Timeliness of reserving B. Accurate evaluation of insured's liability C. Average claim settlement value by claim type D. Accuracy of data entry

B. Accurate evaluation of insured's liability

Anil has his automobile insured with ABC Insurance through his agent, Chad. Returning to his car in a shopping mall parking lot, Anil sees that vandals have spray painted graffiti on his vehicle. He calls Chad to report the damage and ask what he should do. Chad tells him to report the vandalism to the police, follow their instructions, and then take the vehicle home and wait for a call from a claim representative. Chad then reports the loss to ABC. Melissa is the claim representative assigned Anil's loss. Which one of the following will be the first step Melissa takes? Choose one answer. A. Verify that Anil reported the loss to the police. B. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system. C. Call Anil and take a statement regarding the details of the claim. D. Verify that Anil's automobile policy covers vandalism damage.

B. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system.

Which one of the following is an example of the use of access security? Choose one answer. A. Allowing users to maintain passwords B. Allowing only managers to review certain data C. Allowing users to change information D. Allowing only managers to request payments

B. Allowing only managers to review certain data

Soon after a loss has been assigned and initial reserves have been established, a claim representative contacts the insured or the insured's representative. Which one of the following statements is correct with respect to that contact? Choose one answer. A. At the initial contact, claim representatives typically find that insureds fully understand the details of their insurance coverage. B. Claim representatives must be careful not to give the impression that a claim will be paid if potential grounds exist to deny the claim. C. Claim representatives should usually avoid highlighting any possible policy violations, exclusions, or limitations that can affect coverage. D. The initial contact is when claim representatives complete the proof of loss form to document the details and the value of the claim.

B. Claim representatives must be careful not to give the impression that a claim will be paid if potential grounds exist to deny the claim.

The question, "Did the Loss Occur During the Policy Period?" is part of the framework for coverage analysis. Which one of the following statements is true with respect to policy periods? Choose one answer. A. The policy period typically begins and ends at midnight. B. Courts have interpreted the date of occurrence differently. C. Losses that occur outside of the policy period are covered if the broad from policy is used. D. If the date of occurrence is outside the policy period, the claim is not covered.

B. Courts have interpreted the date of occurrence differently.

Jessica has her car insured for liability, collision, and comprehensive coverage with Greatview Insurance. She has decided to purchase a pickup truck as a second vehicle. As she is leaving the dealership with her new pickup, she accidently collides with another vehicle, causing damage to both. Neither she nor the other driver is injured. Jessica returns home and calls her insurer to advise of her new purchase and to report the claim. Her claim is assigned to Lucas. After identifying the policy and entering initial loss information, which one of the following describes how Lucas would most likely proceed? Choose one answer. A. He would advise Jessica that there is no coverage because the pickup is not listed on the policy. B. He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto." C. He would check whether the dealership has insurance to cover damage to Jessica's new truck. D. He would set a liability reserve for general damages arising from the accident.

B. He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto."

Under certain circumstances, an insurer may authorize the adjustment of claims by producers. One of the benefits of providing producers with draft authority is that Choose one answer. A. It gives agents the option of providing coverage for smaller claims that staff adjusters might deny. B. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment. C. Claim handling by producers is immune to regulatory scrutiny. D. Claim payments by producers are not included in loss ratio calculations.

B. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment.

After receiving a claim assignment, a claim representative will identify the policy and assess the coverage available. Which one of the following statements is correct with respect to this activity? Choose one answer. A. Claim representatives generally do not establish claim reserves at this point because the investigation of the loss has not been conducted. B. If it is apparent that coverage may not be available for the loss, the claim representative must notify the insured through a nonwaiver agreement or a reservation of rights letter. C. The claim representative is not typically responsible for verifying whether the insured has followed the policy's terms and conditions before investigating the claim. D. Claim representatives use this initial information to determine the cause of loss, the insured's liability, and the loss amount to be paid.

B. If it is apparent that coverage may not be available for the loss, the claim representative must notify the insured through a nonwaiver agreement or a reservation of rights letter.

An insurer's public image is determined largely by Choose one answer. A. Defense attorneys. B. The claim department's behavior. C. State regulators. D. The actuarial department.

B. The claim department's behavior.

Which one of the following statements is correct regarding the claim function of an insurer? Choose one answer. A. By overcompensating the insured or claimant, the insurer keeps customers happy and can lower the cost of insurance. B. The claim function helps insurers achieve underwriting profit through control of expenses. C. An insurer's reputation for providing the service promised does not affect its ability to meet financial goals. D. The two primary goals of the claim function conflict with one another, hindering an insurer's ability to earn a profit.

B. The claim function helps insurers achieve underwriting profit through control of expenses.

State insurance regulators conduct claim audits to ensure Choose one answer. A. Compliance with reinsurance treaties. B. Understanding of reserving practices. C. Fair and appropriate pricing. D. Equal workloads of claim representatives

B. Understanding of reserving practices.

The control of a computer user's ability to review, enter, and change information in a claim information system is an example of which one of the following types of claim department control? Choose one answer. A. Authority level B. Tracking system C. Access security D. Manager review

C. Access security

Tobias, a claim representative, is handling a very important and very large claim involving sophisticated corporations. To prevent any insiders from accessing his analytical documentation of the claim, Tobias would likely use which one of the following controls? Choose one answer. A. Authority level B. Tracking system C. Access security D. Manager review

C. Access security

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 Choose one answer. A. A public adjuster. B. A third-party adjuster. C. An independent adjuster. D. A hurricane adjuster.

C. An independent adjuster.

Insurers can use different methods of setting claim reserves. Which one of the following methods establishes a predetermined dollar amount of reserve for each claim as it is reported? Choose one answer. A. Roundtable B. Individual case C. Average value D. Expert system

C. Average value

Which one of the following statements is true regarding claim department contacts? Choose one answer. A. Insurer claim departments perform market conduct investigations as part of their normal activities. B. Uniform legislation exists for licensing of insurance claim adjusters. C. Consumer complaints are investigated by the state insurance departments. D. Attorney representation guarantees a faster claim settlement.

C. Consumer complaints are investigated by the state insurance departments.

Antonia and Philip have their house insured with Durham Insurance under an HO-3 homeowner's policy. Philip is the named insured and there is no mortgagee shown on the policy. During a storm, a lightning strike results in a kitchen fire and high winds causes a tree to fall on the roof, leaving a large hole. The homeowners make emergency repairs to protect against further damage and report the loss to the insurer. The claim is assigned to Miguel who identifies the policy and performs an initial review. After discussing the loss with Antonia and Philip, which one of the following will Miguel most likely do? Choose one answer. A. Take detailed statements from firefighters and neighbors to establish what the actual cause of loss was B. Verify whether there is a mortgagee on the property that may need to be included in the loss settlement C. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply D. Verify that Antonia meets the policy definition of "insured" and is entitled to receive payment for her portion of the loss

C. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

Coverage analysis is the process of examining a policy by reviewing all its component parts and applying them to the facts of a claim. Within this analysis, the question "Is the Type of Loss Covered?" helps the claim representative to classify losses as Choose one answer. A. Named peril and direct physical. B. Named peril and open peril. C. Direct and indirect. D. Specified and named peril.

C. Direct and indirect.

Which one of the following statements is correct with respect to claimants' representation by lawyers? Choose one answer. A. Legal representation generally results in higher insurance settlements for claimants. B. When claimants hire lawyers, the insurer must pay the claimants' lawyer fees in addition to the settlement amount. C. For some types of claims and in certain areas of the U.S., claimants are more likely to hire lawyers. D. Legal representation of claimants generally guarantees a faster claim settlement.

C. For some types of claims and in certain areas of the U.S., claimants are more likely to hire lawyers.

Damages that courts award in order to compensate claimants for such things as pain and suffering that do not involve specific measurable expenses are referred to as Choose one answer. A. Compensatory damages. B. Special damages. C. General damages. D. Punitive damages

C. General damages.

Angus, a claim representative for Premium Insurance Company, is adjusting a liability claim where his insured, Josephine, lost control of her brother Horace's car and caused $1,500 in damage to a grocery store. Horace has auto coverage with Upland Insurance Company. Seeking to determine whether other coverage applies, Angus refers to the Other Insurance section of Josephine's Personal Auto Policy (PAP) and finds that Choose one answer. A. Josephine's PAP is primary on non-owned vehicles. B. Josephine's PAP provides no coverage on non-owned vehicles. C. Josephine's PAP is excess over Horace's PAP. D. Josephine's PAP and Horace's PAP will share the loss.

C. Josephine's PAP is excess over Horace's PAP.

People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or Choose one answer. A. Private claims representatives. B. Self-insurer claim representatives. C. Producers who sell policies to insureds. D. Special claims representatives.

C. Producers who sell policies to insureds.

The first goal of the claim function is to Choose one answer. A. Pay as little as possible when settling covered losses. B. Be sensitive and empathetic to those who have suffered a loss. C. Satisfy the insurer's obligations to the policyholder. D. Look for reasons to avoid paying reported claims

C. Satisfy the insurer's obligations to the policyholder.

One of the primary goals of the claim function is Choose one answer. A. Informing producers of court rulings that affect the insurer's loss exposures or pricing. B. Reviewing post-loss evaluations with the underwriting department. C. Supporting the insurer's financial goals. D. Sharing accurate loss information with an insurer's actuarial department

C. Supporting the insurer's financial goals.

Claim representatives are responsible for determining the cause of loss, liability, and the loss amount. Which one of the following statements is correct with respect to this process? Choose one answer. A. If there are several causes of loss, the claim representative need only identify one that is covered under the policy. B. When an insurer pays a claim to an insured for a loss caused by a negligent third party, the insurer cannot recover from the third party. C. The claim representative reviews all component parts of the policy and applies them to the facts of the case. D. Claim payments are not typically subject to sublimits, deductibles, or coinsurance provisions in the policy.

C. The claim representative reviews all component parts of the policy and applies them to the facts of the case.

The claim handling process begins when the insured reports the loss to the producer or to the insurer's claim center. Which one of the following statements is correct with respect to the next element of the claim handling process? Choose one answer. A. Most insurers assign claims based on the territory and ensure that all elements of a single loss are handled by the same claim representative. B. The timeframe during which a claim must be acknowledged is not generally subject to state insurance regulation. C. The insurer provides the insured with a claim number and contact information for the assigned claim representative. D. In the case of a third-party claim, the claim representative should contact the insured, but not the third party.

C. The insurer provides the insured with a claim number and contact information for the assigned claim representative.

Which one of the following statements is correct with regard to the various users of claim information? Choose one answer. A. The three primary departments that receive claim information are purchasing, underwriting, and actuarial. B. Post-loss evaluation is not important for underwriting management because claim adjusters alert underwriters to any negative trends. C. In order to project the development of open claims and establish reserves for IBNR claims, actuaries need paid losses, but not losses that are on reserve. D. Individual underwriters are interested in claim information for the specific accounts they have underwritten.

D. Individual underwriters are interested in claim information for the specific accounts they have underwritten.

Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like an Choose one answer. A. Outside claim representative. B. Independent adjuster. C. Insurance appraiser. D. Inside claim representative.

D. Inside claim representative.

Chloe is a claim representative with Fredine Insurance Company. She has been assigned a personal lines automobile claim for insureds, Oscar and Sara. Oscar and Sara were involved in an accident with another vehicle, and there is damage to both vehicles. In addition, the driver of the other vehicle and Sara each suffered minor injuries in the accident and were treated in the emergency room. Chloe follows the usual steps in the claim handling process. She identifies the policy and sets her initial reserves. She also confirms the details of the accident in a conversation with Oscar and Sara. Using the framework for the claim handling process, which one of the following will most likely be Chloe's next step? Choose one answer. A. Confirm the loss reserves with Oscar and Sara. B. Conclude the claim. C. Determine the loss amount. D. Investigate the claim.

D. Investigate the claim.

Files chosen by managers or technical support staff for internal claim audits are selected on the basis of the Choose one answer. A. Total incurred value. B. Criteria mandated by the insurance commissioner. C. Total reserve value. D. Reason for audit.

D. Reason for audit.

The purpose of an activity log is to Choose one answer. A. Log all activities of a claim representative for billing purposes. B. Remind claim representatives to perform a particular task. C. Document a manager's review of a claim representative's performance. D. Record all activities and analysis of a particular claim.

D. Record all activities and analysis of a particular claim.

Alexis has inherited a family cottage that she has insured with Millstone Insurance for $100,000. One weekend while Alexis is at the cottage, a fire starts in the night. The cottage is a total loss. Alexis calls her insurance agent who reports the claim to Millstone. The claim is assigned to Victor, a property claim representative. After entering the information from the notice of loss into Millstone's claim-processing system, which one of the following will Victor most likely do? Choose one answer. A. Verify whether any exclusions apply B. Advise the agent that the policy is in force C. Verify that Alex owns the cottage D. Set preliminary loss reserves

D. Set preliminary loss reserves

Which one of the following statements is true concerning claim department contacts? Choose one answer. A. Expense management for defense is a nonessential component of the overall claim function. B. Technological improvements have weakened the quality of claim service. C. All states require claim adjusters to be licensed. D. State regulators monitor insurers' activities in the claim settlement process.

D. State regulators monitor insurers' activities in the claim settlement process.

When the policy does not define a cause of loss or another term, which one of the following can the claim representative use to determine the meaning? Choose one answer. A. Best practices B. Underwriting guidelines C. Miscellaneous provisions D. Statutory provisions

D. Statutory provisions

One of the first determinations a claim representative must make is whether or not the person involved in a loss is covered. In order for an individual to be covered under a property insurance policy, all of the following conditions must apply, EXCEPT: Choose one answer. A. The individual must suffer a financial loss as a result of a covered occurrence. B. The individual must fall within the definition of "insured" under the policy. C. The individual must have an insurable interest in the damaged or destroyed property. D. The individual must provide the systematic framework for coverage to the claim representative.

D. The individual must provide the systematic framework for coverage to the claim representative.

All of the following explain when the use of independent adjusters might be advantageous, EXCEPT: Choose one answer. A. Insurers may use independent adjusters for specific types of losses, for example, aircraft accidents, in which specialized expertise is required to settle the claim. B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the claim volume and may temporarily depend upon independent adjusters to handle the excess. C. In some areas it is not economically feasible to set up remote claim offices and in these areas insurers may depend on independent adjusters to handle their insureds' losses. D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.

D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: Choose one answer. A. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents. B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters. C. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

Claim representatives begin investigating a claim as soon as it is assigned. Which one of the following statements is correct with respect to investigation? Choose one answer. A. Claim representatives typically only conduct prior claim investigations when they suspect an insured of attempting to commit insurance fraud. B. Accident scene investigations are usually ineffective in determining whether the accounts of a loss are plausible or questionable. C. The process of claim investigating is generally standardized and claim representatives approach most claims in the same manner. D. The insurer's claim handling guidelines help determine the type and extent of investigation needed for a satisfactory claim settlement.

D. The insurer's claim handling guidelines help determine the type and extent of investigation needed for a satisfactory claim settlement.

People who handle claims fall into a number of categories. Those who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called Choose one answer. A. Claim managers. B. Independent adjusters. C. Staff claim representatives. D. Third-party administrators.

D. Third-party administrators.