Assignment 6 Questions

Despite the unique challenges and variations from case to case, the last step in the claim handling process is usually A. Determining cause of loss. B. Determining the amount of damages. C. Verifying coverages. D. Negotiating and settling.

D. The last step in the claim handling process is usually negotiating and settling.

A loss reserve that is assigned to an individual claim is called a A. Case reserve. B. Bulk reserve. C. Third-party reserve. D. Deferred reserve.

A. A case reserve is a loss reserve assigned to an individual claim.

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 special damages?

A. The amount of special damages is $10,000.

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

A public adjuster, who is an organization or person hired by an insured to represent the insured in a claim, may be necessary if a claim is complex or if settlement negotiations are not progressing.

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? A. 75% B. 83% C. 96% D. 104%

B. SBC's loss ratio is 83%. LR = (IL + LAE)/ EP x 100%.

Defending liability claims through litigation can be a very long and expensive process. Mediation and arbitration are two common forums for settling claims outside the traditional court system. What is the difference between arbitration and mediation? A. Someone other than the insurer and the claimant decides the case in arbitration. B. The arbitrator's decision is always binding. C. Only one insured and one insurer can be involved in arbitration. D. Solutions are proposed in arbitration to help the parties settle.

A. In arbitration, someone other than the insurer and the claimant decides the case.

Claims vary from one another in various ways, but there are some basic claim handling activities that apply to almost every claim, from the simplest to the most complex. These activities include all of the following, EXCEPT: A. Sending a reservation of rights letter B. Verifying coverage C. Determining the cause of loss D. Settling or denying the claim

A. Sending a reservation of rights letter should occur when a question of coverage exists and the insurer plans to continue its investigation.

Brad is a claim representative and has received a claim from an insured. The insured backed his car into a post and slightly damaged the bumper. Brad does a quick estimate and sees that the damage probably does not even exceed the insured's deductible, so he puts the claim aside to work on a larger more complicated claim. After four weeks of hearing nothing, the insured eventually gets upset and contacts Brad's manager and the state insurance department. Which one of the following best addresses the question of whether Brad's actions likely constitute a violation of the states unfair claims practices act? A. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim. B. Yes, because most of these laws require that insurers contact the insured about a claim within one week of first receiving the claim report. C. No, because Brad has not officially declined the claim or told the insured that the amount of the claim is less than the insured's deductible and therefore is not subject to these laws. D. Yes, because most of these laws prohibit claim representatives from making their own estimates as to the damage incurred and require that a licensed estimator make the estimate.

A. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.

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 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.

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

D. A third-party claim is a claim made against the policyholder by someone to whom the policyholder may be liable.

The most typical third-party bad-faith claim alleges A. Breach of contract. B. Bad-faith claims made against the first-party policyholder relating to coverage issues. C. Failure of a claim representative to divulge details of a loss investigation that would lead to an increased claim payment to the insured. D. An improper failure to settle a third party's liability claim within policy limits followed by a verdict that exceeds the policy limits.

D. The most typical third-party bad-faith claim alleges an improper failure to settle a third party's liability claim within policy limits followed by a verdict that exceeds the policy limits.

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

D. The value of an insurance contract in the event of a claim includes peace of mind.

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 A. Claim managers. B. Independent adjusters. C. Staff claim representatives. D. Third-party administrators.

D. Those who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called third-party administrators.

One aspect of good-faith claim handling is the fair evaluation of the claim. A fair approach to evaluating liability claims is for the claim representative to evaluate them A. As if no coverage limit existed. B. From the claimant's perspective. C. As they relate to similar claims with similar coverage and limits. D. By forming a claim committee for the purpose of achieving greater impartiality.

A. A fair approach to evaluating liability claims is for the claim representative to evaluate them as if no coverage limit existed.

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

A. All of the following are factors in determining the replacement cost of real property, EXCEPT: Actual cash value of the property.

Which one of the following statements about claim investigations describes an element of good-faith claim handling? A. Claimants and/or insureds should be contacted promptly by the claim representative. B. The claim representative should begin the claim investigation after the insured is contacted. C. Liability claims should be evaluated so that the level of investigative thoroughness can be determined. D. Leading questions help investigators to determine the legitimacy of a claim.

A. Claimants and/or insureds should be contacted promptly by the claim representative.

Subrogation is the insurer's right to. A. Recover its claim payment from the responsible party. B. Drop a claim in exchange for an agreed amount of money. C. Estimate the value of the damaged property. D. Transfer coverage to a third party.

A. Subrogation is the insurer's right to recover its claim payment from the responsible party.

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 A. A coverage problem may exist. B. The claim will be handled by an independent adjuster. C. The policy may not be renewed due to loss frequency. D. The claim is in excess of the deductible.

A. The purpose of this letter is to advise the insured that a coverage problem may exist.

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 A. Special damages. B. Punitive damages. C. General damages. D. Measurable damages.

A. The technical term for such expenses is special damages.

Which one of the following would likely be an unacceptable practice under most states' unfair claims practices act? A. A claim representative realizes that a homeowners property claim will be large and also that the insured needs funds immediately to buy necessities, so he gives the insured a partial advance payment on the claim. B. A claim representative is asked by an insured if a claim is covered by the policy's liability coverage and the claim representative responds "no" even though he knows it is covered elsewhere in the insured's policy. C. A claim representative reviewing a claim is unsure of the coverage and waits until the following day to respond to the insured so that he has time to check the coverage with his supervisor. D. A claim representative receives two estimates on the damage to an insured's vehicle and pays the higher of the two estimates because he believes the lower estimate might not be correct.

B. A claim representative is asked by an insured if a claim is covered by the policy's liability coverage and the claim representative responds "no" even though he knows it is covered elsewhere in the insured's policy.

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 A. A third-party administrator. B. A field claim representative. C. An independent adjuster. D. An adjusting agent.

B. A field claim representative investigates the scene of loss; meets with insureds, claimants, lawyers, and others; and inspects damage.

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

B. ACV is replacement cost minus depreciation.

Jorgen is a claim supervisor who is devising a new response plan for his employer so that it can handle catastrophe claims more effectively. All of the following are factors he should consider, EXCEPT: A. Retaining independent adjuster firms B. Requesting that personnel staff temporary claim offices without pay. C. Increasing the role of producers through increased settlement authority D. Giving the policyholder the benefit of any doubt as to the valuation of property

B. All listed are factors Jorgen should consider, EXCEPT requesting that personnel staff temporary claim offices without pay.

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

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

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 A. Multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500. B. Use past cases which are similar as a guide. C. Consider what she would want to be paid if she were in claimant's shoes. D. Multiply $1,500, the amount of special damages, by six, the number of weeks of physical therapy, and pay $9,000.

B. In assessing general damages, Toni should use past cases which are similar as a guide.

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

B. The best description of a first-party claim is a claim made by the policyholder against the insurer.

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

B. The loss ratio is incurred losses divided by earned premium.

Which one of the following would have an insurable interest in real property? A. Bank that has provided a personal credit card to the owner of the property B. Former owner of the property C. Mortgagee that has provided a mortgage loan on the property D. Someone expressing interest in purchasing the property

C. A mortgagee such as a bank that has provided a home mortgage loan has an insurable interest in real property to the extent of the outstanding mortgage.

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

C. An insurance contract is not a means to provide a profit to the insured. An insurance contract is a financial mechanism to restore claimants to a pre-loss state, and to promote peace of mind to policyholders who have suffered losses.

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

C. Claim files should be in a logical order that results in more efficient claim processing. Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount.

A goal of the claim function is to support the profit goal of the A. Insured. B. Claimant. C. Insurer. D. Policyholder.

C. Correct. A goal of the claim function is to support the profit goal of the insurer.

In handling catastrophe claims, insurers should do all of the following, EXCEPT: A. Use abbreviated claim handling procedures B. Increase settlement authority of producers C. Increase record keeping requirements D. Settle all questions of property valuation in favor of the policyholder

C. In handling catastrophe claims, insurers should do all that is listed, EXCEPT increase record keeping requirements.

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

C. One way for claim managers to help maintain an insurer's underwriting profit is to establish appropriate spending policies.

One of the greatest challenges for an insurer dealing with a catastrophe is staffing. All of the following are likely responses to this challenge, EXCEPT: A. Identifying and training staff from non-claim areas to assist. B. Establishing relationships with independent adjusters to help manage overflow. C. Purchasing catastrophe reinsurance. D. Bringing in catastrophe teams of claim representatives from other regions.

C. Purchasing reinsurance is not a means to meet staffing needs for catastrophe claims.

Property insurers are subject to the possibility of many claims occurring from a single event and straining their resources. This type of event is called A. An accident. B. An occurrence. C. A catastrophe. D. A simulation.

C. This is called a catastrophe.

If an insured submits a claim for a seven-year-old refrigerator that was damaged due to lightning, the adjuster will probably factor in an allowance for wear and tear. This is called A. Replacement cost. B. Depreciation. C. Stated amount. D. Agreed amount.

C. This is called depreciation.

All of the following are correct with respect to the elements of good-faith claim handling, EXCEPT: A. Consistent supervision, thorough training, and manageable caseloads help ensure that claim representatives are able to handle claims in good faith. B. If the insured has excess insurance, the claim representative should notify the excess insurer of the claim and provide the insured with copies of all communications. C. When resolving a coverage question, insurers should avoid the appearance of bad faith by dealing only with those lawyers hired to defend the insured. D. Claim representatives should use policy provisions, such as arbitration clauses, when applicable to resolve disputes over the settlement amount.

C. When resolving a coverage question, insurers should avoid the appearance of bad faith by dealing only with those lawyers hired to defend the insured.

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 A. Damage reserve. B. Suit reserve. C. Claim reserve. D. Case reserve.

D. A case reserve is a loss reserve assigned to an individual claim.

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 A. Satisfies the mandate of regulators. B. Makes the company's policies more marketable. C. Supports his company's profit goals. D. Undermines the effectiveness of his company's advertising.

D. A reputation for resisting legitimate claims can undermine the effectiveness of an insurer's advertising.

A reservation of rights letter A. Lists all of the rights that an insurer has under an insurance policy. B. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later. C. Lists all of the rights that an insured has under an insurance policy. D. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.

D. A reservation of rights letter advises the insured that the insurer is investigating the claim, but retains the right to deny coverage later.

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

D. In a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as general damages.

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

D. In liability claims, the claimant is referred to as the third party.

In order to expedite claim handling during a catastrophe, an insurer will consider all of the following modifications to procedures, EXCEPT: A. Temporarily increasing claim handling authority for producers B. Making advance payments to policyholders C. Using abbreviated claim handling procedures D. Suspending the use of independent adjusting firms

D. In order to expedite claim handling during a catastrophe, an insurer will consider all of the modifications to procedures listed, EXCEPT suspending the use of independent adjusting firms.

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

D. In this role, producers function much like an inside claim representative.

Insurers handling catastrophe claims should be prepared for A. Claimants who are not eager to assert their rights. B. Mortgagees that are eager to abbreviate their procedures. C. News media eager to promote aggressive behavior. D. Claimants who are aggressive in their pursuit of settlement.

D. Insurers handling catastrophe claims should be prepared for claimants who are aggressive in their pursuit of settlement.

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

D. Person or entity that would suffer a financial loss if property were damaged has an insurable interest.

All of the following explain when the use of independent adjusters might be advantageous, EXCEPT:. 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. (Independent adjusters handle claims for insurers for a fee, not for insureds.) This is not an advantage of the use of independent adjusters.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: 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 would not retain an independent adjuster if settlement negotiations with the insurer were not progressing satisfactorily. (Independent adjusters handle claims for insurers for a fee, not for insureds.)

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 . A. $ 60. B. $180. C. $420. D. $600.

The stereo's ACV is 3/10 x $600 = $180. $600 - $180 = $420.