N.C. Claims Adjuster Exam

Responsibilities of Agents and Companies

1. Agents deal with their clients in a fiduciary capacity. A fiduciary relationship develops when an individual places trust in someone else to perform certain duties or actions. This is particularly true in the insurance business when an agent accepts money from the client to purchase or pay for a policy. The agent who diverts this money for their own use will be guilty of theft or embezzlement. Agents who perform their duties in an acceptable manner are not liable for contracts entered into on behalf of their principal. An agent can, however, be held personally liable for certain contracts when: A. The agent has breached their authority, B. The agent represents an incompetent principal, C. The agent commits a civil tort or a crime. 2. An agent's duties to the principal (insurance company) include: A. Loyalty, B. Obedience, C. Use of reasonable care, D. Accurate accounting, E. Communication of information held by the agent to the company. 3. Even without intent, it is possible for an agent to make an error or an omission through negligence or lack of knowledge.

Adverse Underwriting Decision

1. An application for insurance has been rejected, 2. An existing policy has been terminated, 3. Coverage has been placed with a residual market mechanism. Failure to place coverage with a company requested by the applicant and charging of a higher rate based on information that differs from that supplied by the insured. However, charging higher premium due to an increase in hazard is not considered to be an adverse underwriting decision.

Commissioner of Insurance responsibilities

1. Assure that insurance laws are adhered to by all parties. The Commissioner or his/her Deputy has the power to issue subpoenas and/or administer oaths. To assure adherence to the law, the Commissioner may institute civil actions or criminal prosecutions through the Attorney General. 2. Monitor the financial stability of admitted companies through the review of their annual financial statements. 3. Provide assurances that companies and agents are competent to conduct the business of insurance. 4. Regulate unfair trade and claims practices. 5. Approve both rates and forms for insurance marketed in this State. The Department will make available for public inspection the rates and deviations for residential and non-fleet (personal) automobile coverage. 6. All examinations or investigations may be conducted by the Commissioner personally or by someone appointed by the Commissioner. Any examination and/or hearing must be preceded by at least 10 days prior to written notice to all parties. 7. The Commissioner may suspend an agent's or adjuster's license prior to a hearing if the Commissioner believes such action is necessary to protect the publish health, safety or welfare. Revocation of authority can only be done after a hearing or conviction in court of violating insurance laws.

Insurance contract consists of:

1. Declarations page, 2. Insuring Agreements, 3. Conditions, 4. Exclusions, 5. Endorsements, 6. Definitions

SFP Provisions

1. Friendly fire, 2. Cancellation, 3. Mortgagee (Loss Payee) Rights, 4. Pro-Rata Liability, 5. Concealment and Fraud, 6. Legal Action, 7. Sub rotation, 8. Abandonment Clause, 9. Policy Inception and Expiration

Total Losses on Motor Vehicles/Miscellaneous Provisions

1. If the insurer and the claimant are unable to reach an agreement as to the value of the vehicle, the insurer shall base any further settlement offer not only on the published regional average value of similar vehicles, but also on the value of the vehicle in the local market. 2. Local market value shall be determined by using either the local price of a comparable vehicle or if no comparable vehicle can be found, quotations from at least two qualified dealers within the local market area. Additionally, if the claimant represents that the vehicle was in better than average condition, the insurer shall give due consideration to the condition of the claimant's vehicle prior to the accident. 3. When a motor vehicle is damaged in an amount which equals or exceeds 75 percent of the preaccident actual cash value, an insurer shall "total loss" the vehicle by paying the claimant the preaccident value and in return, receiving possession of the legal title for salvage purposes. 4. The insurer will be responsible for all reasonable towing and storage charges until three days after the owner and the storage facility are notified in writing that the insurer will no longer reimburse the owner or storage facility for storage charges. 5. Loss and claims payments shall be mailed or otherwise delivered within 10 business days after the claim is settled.

Regulations Regarding Insurance Transactions

1. Insurance company's, agency's or agent's records are subject to inspection to determine compliance with the law. The refusal to submit to an examination of records is also grounds for the revocation or refusal of licensure. All records must be maintained for no less than 5 years. 2. All statements given on an applications are considered representations. 3. Any deductible or cost-sharing amount between the named insured and insurer must be expressed in the contract and no provision increasing this amount is allowed. Cost sharing (coinsurance clauses) can be included in insurance contracts only if the policy prominently displays the notice that the contract has a coinsurance clause. 4. It is unlawful for an insurer to discriminate in the rates charged for automobile coverage on the basis of either age or sex. 5. When a proof of loss is required by an insurer, the company must apply such a form within 15 days of receiving notification of the claim. If not provided, the insured may submit the proof of loss with any written document that provides the necessary information concerning the occurrence and the extent of the loss. 6. It is unlawful for lending institutions to require the purchase of insurance through the lending institution as a condition of making or renewing a loan. 7. Twisting involves misrepresentation of a policy's terms and values to induce the lapse or replacement of an existing contract of insurance. 8. A rebate is any valuable consideration not specified in the contract, which is offered as an inducement to purchase insurance. 9. It is illegal for an agent to charge money in excess of the premium for policy fee's or the performance of services unless a prominent sign is posted in the business lobby, the client provides prior written consent to each charge and a separate receipt is issued for the payment of such fees. 10. Agents shall be held personally liable for contracts that they have unlawfully executed. An agent soliciting for and transacting with a non-admitted company will, in addition, be guilty of a misdemeanor if the agent did not know the company was non-admitted; a felony if the agent knew or should have known that the insurer was non-admitted. 11. Commingling, the accounting records of agents shall be separate and apart from any other business records and funds due to insurers and return premiums due to policyholders must be available at all times. 12. All payment receipts issued by an agent should be dated and contain the name and address of the agent and the name of the insurance company. The receipt should also be signed by the person accepting the payment. 13. Every agent, adjuster or other insurer's representative shall, when conducting insurance business with a member of the public: A. Identify himself or herself and his or her occupation; and B. Provide his or her National Producer Number and the Department's website address and phone number for verification of licensure status when requested to show proof of licensure.

Unfair Claims Settlement Practices

1. Knowingly misrepresenting relevant facts or policy provisions relating to the coverage at issue. 2. Failing to acknowledge with reasonable promptness communications pertaining to claims. 3. Failing to adopt and implement reasonable standards for the prompt investigation of claims. 4. Arbitrary and unreasonable refusal to pay claims. 5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed. 6. Not attempting in good faith to make prompt, fair and equitable claims settlement when the insurer's liability has become reasonably clear. 7. Compelling insureds to institute suits to recover amounts due under a policy by offering substantially less to settle immediately. 8. Attempting to settle claims for less than the amount for which a reasonable person would believe one was entitled based on written or printed advertising material accompanying or made a part of an application. I. Attempting settlement of claims on the basis of applications that were altered without notice to knowledge of or consent of insureds.

Characteristics of Insurable Risk

1. Low probability of loss occurring, 2. Less than catastrophic results, 3. The loss must be measurable, 4. The loss must be significant, 5. The loss must be accidental and unintended.

Incompetent parties

1. Minors, 2. The mentally infirm, 3. Persons under the influence of drugs or alcohol.

Responsibilities of Agents and Companies when an adverse decision has taken place. These responsibilities include:

1. Providing specific reasons for the adverse underwriting decision or advising the applicant that the reasons are available upon written request to the company. If the written request is submitted within 90 days, the company has 21 business days to respond. 2. Provide a summary of the applicant's right to know what information prompted the decision and their right to challenge the decision if the information is felt to be inaccurate. Any disputed information must be responded to within 30 business days. 3. An insurance institution or agent shall clearly specify those questions designed to obtain information solely for marketing or research purposes from an individual in connection with an insurance transaction. 4. No adverse underwriting decision may be based on a previous adverse underwriting decision.

Waiver

A legal doctrine placed in writing that means the voluntary abandonment of a right or advantage.

Temporary License

A temporary license is only good for 180 days.

Agent, Adjuster or Insurer's Representative shall:

A. Identify himself or herself and his or her occupation; and B. Provide his or her National Producer Number and the Department's website address and phone number for verification of licensure status when requested to show proof of licensure.

Misrepresentation or False Advertising Policies

A. Misrepresentation of benefits (twisted), B. Misrepresentation of dividends, C. Misrepresentation of the financial condition or reserves of the insurer, D. Names or titles of insurance policies that misrepresent the true nature of the contract.

Declarations Page

A. The parties to the contract, B. The policy term, C. The amount of insurance purchased, D. The amount of the premium, E. The object or person insured.

Property Insurance - Direct Loss

Actual monetary loss caused by the physical damage to or destruction of tangible property.

Adverse Selection

Adverse selection occurs when insureds with a high risk of loss attempt to purchase insurance and are successful in obtaining insurance.

Licensing Law (Resident Licensing)

All persons wishing to solicit and/or effectuate insurance coverage as an agent for an insurer must obtain an agent's license. Such licenses are perpetual unless surrendered, terminated or revoked. Will remain active provided they meet the continuing education requirements each 2 years. Applicants must be at least 18 years old, trustworthy, financially responsible, have not willfully violated any insurance law and reside in this state. Applicants must show certification of having completed 20 hours of pre-licensing education for Life, Accident and Health, Property, Casualty and Personal Lines insurance prior to taking the state exam, unless exempt from requirements. Medicare Supplement/Long Term Care supplemental licensure requires 10 hours of pre-licensing education.

Spread of Risk (Geographic Dispersion)

Also used to decrease loss probability. This process involves spreading the company's policies (exposures) over a broad geographical area in order to avoid large losses in the vent of a catastrophic event. An example is a hurricane.

After Market Parts

An after market part is any part made by a non original manufacturer.

Rebate

Any valuable consideration, not specified in the contract, which is offered as an inducement to purchase insurance. It is illegal for any person to offer or for any person to accept such an inducement.

Damages - Special Compensatory damages

Are amounts paid to compensate the plaintiff for direct expenses such as medical treatment, lost wages (both past and future), funeral expenses and rehabilitation expenses required because of bodily injury. Special damages are paid for losses that can be determined and documented. They are often referred to as "out-of-pocket" expenses.

Reciprocal (Assessment) Companies

Are non-incorporated associations of individuals or businesses (subscribers) who engage in cooperative insurance. Each policyholder is insured by all other policyholders and each policyholder insures the others as coverage is exchanged on a reciprocal basis. Two important facts to remember about reciprocals are: 1. Managed by Attorney-in-Fact (not necessarily a lawyer), 2. The Attorney-in-Fact can assess the policyholders for additional premiums if underwriting losses jeopardize financial solvency.

Mutual Insurance Companies

Are owned by their policyholders. Each policyholder "owns" a part of the company equal to their proportionate share of the company's total insurance in force. The policyholders select a board of directors who appoint officers to be in charge of the company's daily operations. Operating surpluses of these companies may be returned to their policyholders in the form of a non-taxable policy dividend. The dividend is non-taxable because it is a return of premium (the company charged too much).

Damages - General Compensatory Damages

Are paid for losses that cannot be specifically measured and itemized in order to compensate the plaintiff for things such as pain and suffering, loss of the use of an arm or leg, loss of vision, physical disfigurement and/or loss of consortium.

Perils

Are the actual cause of loss such as a fire, theft, wind, hail, etc.

Damages - Punitive Damages

Are typically awarded to the plaintiff in addition to compensatory damages when the defendants conduct has been especially malicious. Punitive damages are awarded to punish the defendant and to deter others from engaging in similar actions.

Unilateral Contract

Can only be enforced by one party. Only insurance company makes legally enforceable promise.

Commissioner of Insurance

Chief regulatory body for the oversight of the industry. The voters of this state elect the Commissioner of Insurance to a four-year term of office as a member of the Council of State. If the office becomes vacant during the Commissioner's term, the Governor shall appoint the replacement.

Defamation

Circulation, by either oral or written means, of a false or derogatory statement intended to injure another party.

Package

Commercial Insurance only.

Domestic Companies

Companies organized in this state.

Pretext Interviews

Conducted when an individual does not reveal their identity or they pose as someone else in order to obtain information.

Legal object

Contracts must fulfill a legal purpose in order to be enforced.

Occurrence Date

Date of which the loss occurred

Endorsements

Endorsements modify (add or take away rights) the basic contract.

Competent Parties

Enforceable contracts can only be executed by individuals who have the legal capacity to enter such an agreement.

Reinsurance

Filed of the industry where insurers sell portions of their individual contracts of insurance to other companies. This activity helps with the spread of risk and/or improves cash positions by lowering reserve requirements for these contracts. Insurance companies also purchase reinsurance to protect themselves in case of catastrophic losses.

Insurable Interest

Financial interest in the property. This interest must exist at the time of the loss, but not necessarily at the time of policy purchase.

Non-Admitted or non-authorized companies

For basic understanding, property, casualty and personal lines insurance agents are not permitted to represent or place insurance with non-admitted companies.

Disclosure Authorization Form

Grants permission for the insurance company to obtain and/or release specified non-public information. The maximum effective time period for this authorization in property and casualty insurance is 12 months.

Policy Form/Number

Identifies the type of coverage purchased (policy form) and the policy number for the particular policy purchased by the insured.

Offer and Acceptance Agreement

In the insurance contract, the offer is made by the proposed insured. The acceptance occurs when the policy is issued. However, sometimes it is necessary for the company to rate-up a substandard risk. This action becomes a counteroffer and the applicant must then either accept or reject the counteroffer. Regardless, all contracts must have an offer and acceptance.

Hazards

Increase the probability of a peril occurring. Bald tires on an automobile increase the chance of a wreck happening. The tires are the hazard, the wreck is the peril.

Property Insurance

Indemnified (repays) a person or business with an interest in the physical integrity of tangible property for its loss or the loss of income produced by that property.

Description of the Loss

Information concerning how, when and where the accident or loss happened is an essential element in any loss report.

Adhesion

Insurance contract and its wording are prepared by the insurer. The applicant cannot bargain over that wording. Therefore, the contract is purchased as it is worded and the insured is "stuck with" that wording.

Twisting

Involves the misrepresentation of a policy's terms and values to induce the lapse or replacement of an existing contract of insurance. Such actions would be to the detriment of the insured.

Payment Receipts

Issued by an agent should e dated and contain the name and address of the agent and the name of the insurance company. The receipt should also be signed by the person accepting the payment.

Law of Large Numbers (Law of Averages)

Mathematical principle that makes it possible to predict future losses based upon prior experience.

Property Casualty and Personal Lines Agents

May be given "binding" authority. A binding premium receipt (binder) is temporary evidence that insurance is in effect without condition.

Probability

Measures the chance of an event occurring, it is the measure of uncertainty (risk).

Change of Residency

Must be communicated to the Commissioner within 10 business days.

Change of Name

Must be communicated to the Commissioner within 30 days.

Estoppel

One party to a contract may be estopped (stopped) by their past words or actions from asserting a right granted to them in the contract. An estoppel would be the legal consequences of a waiver.

Insurable Risk

One that an insurance company is willing to accept.

Alien Companies

Organized in another country.

Foreign Companies

Organized in another state.

Insurance Information and Privacy Protection Act

Outlines procedures to be used to protect the confidential nature of the information processed in the insurance industry. However, this act does not apply to information collected from public records of a governmental authority, such as the NC Dept. of Motor Vehicles.

Private or Voluntary Insurance

Portion of the insurance industry where individuals seek coverage to meet recognized needs. These coverages are neither required nor made available by government. An example would be collision insurance in a personal automobile insurance policy.

Social Insurance

Programs either required or made available by government.

Capital Stock Companies

Proprietary companies that are in business to make a profit for their stockholders. These companies are owned by stockholders who retain management responsibility through the selection of a Board of Directors. Profits are paid to the stockholders in the form of a commercial stock dividend that is fully taxable to the stockholder.

Multi line Policy

Provides both property and liability insurance.

Named Peril

Provides coverage only for those perils identified in the policy. Unless a loss is caused by a covered (named) peril, there will be no insurance company. Therefore, the burden of proof is on the named insured to prove that their loss was caused by a covered peril (ex. Wind, hail).

Mono line Policy

Provides property or liability insurance

Casualty Insurance

Provides protection to meet the unexpected costs imposed by law due to acts that have caused bodily injury or property damage to another individual. Included isn't he field of casualty (liability) insurance are automobile, crime and surety bonds.

Agents

Representatives of the insurer. Agents must be licensed with the state to legally conduct insurance transactions. Agents receive their authority to operate on behalf of the company by the agency contract and by an appointment.

Property Insurance - Indirect (Consequential) Loss

Results as a consequence of a direct loss. An indirect loss involves a loss of revenues or extra expenses that result from physical damage to or destruction of property.

Friendly Fire

SFP provision - no coverage for a fire if the damage was a result of a friendly fire. A friendly fire was one that was intentionally lit and stayed within its intended bounds.

Underwriting

Selects those applications that the company wishes to insure using standards established by the company, but always guarding against adverse selection. Loss ratios can be directly affected by the underwriting standards of the company. Loss ratios are determined by dividing the losses (claims) of the company by the premiums collected.

Appointment Cancellations

Shall be communicated within 30 days.

Coverage

Shows the type of coverage(s) purchased as well as the limits of coverage purchased.

Misrepresentation

Simply, this is a lie regarding material information.

Warranties

Statements guaranteed as to accuracy for both past and future events.

Representations

Statements in the application that are made with utmost good faith, but they are not guaranteed to be accurate.

Notice of Information Practices

Summarizes the applicant's rights under the act including the right to know what information was gathered and from whom. Shall be provided to the applicant no later than at the time of the delivery of the policy when personal information is collected only from the applicant or from public records or at the time of collection of personal information is initiated.

Independent Agency System

System in which an agent may represent more than one insurance company in the marketing of property and liability insurance products. Independent agents own the business and they retain all rights to the accounts they have placed with a company.

Binder

Temporary evidence that insurance is in effect without condition. Binders may be written or oral. Oral binders must be replaced by a written binder as soon as possible. The binder provides coverage until the policy arrives.

Insuring Agreements

The "heart" of the contract that states the perils that are insured against. The insuring agreement also establishes the insurer's responsibility to pay claims in the event a covered peril occurs.

Powers of the Commissioner of Privacy Act

The Commissioner may investigate alleged violations of the insurance information and Privacy Protection Act. If just cause is found, the commissioner may hold a hearing after at least 10 days prior written notice to all parties. The Commissioner may subpoena companies, agents and insurance support organizations. The law also allows the applicant to be heard at this hearing and they may be represented by legal counsel.

Commingling

The accounting records of agents shall be separate and apart from any other business records and funds due to insurers and return premiums due to policyholders must be available t all times.

Identification of parties involved

The loss report should include the names and addresses of the parties involved in the loss, the names and addresses of any injured person(s) and the names and addresses of any witness(s).

General Regulations of Insurance

The purpose of the statutes and regulations governing the conduct of the insurance industry is to promote and protect the public welfare.

Unfair Trade Practices Act

The purpose of this act is to prohibit all practices considered by this state as an unfair method of competition or deceptive practice. 1. Misrepresentation or False Advertising of Policies, 2. Defamation, 3. Boycotting, Coercion and Intimidation, 4. Filing false financial statements, 5. Unfair Discrimination between individuals with similar exposures and hazards, 6. Rebating is any valuable consideration, not specified in the contract, which is offered as an inducement to purchase insurance, 7. Misuse of Confidential information.

Specific Statutes Commonly Violated

These actions are considered to be felonies. 1. Any agent or broker who converts to their own use any money or property received without instructions of or approval of the insurer shall be guilty of embezzlement. 2. Any person who willfully submits false statements or proof of loss in the filing of a claim to receive payment for such claim will be guilty of insurance fraud. 3. Any person who knowingly places any insurance coverage with a non-admitted insurance company.

Conditions

These are the provisions and stipulations of the policy. Conditions state the rules of conduct for both the insurance and insurer. Important conditions are the payment of premium, providing proof of loss and accurate responses to application questions.

Exclusions

These list what perils are not covered. Exclusions tend to be those things considered uninsurable.

Brokers and representatives

They "shop the market" on behalf of their clients and obtain coverage best fills the client's needs. In order to obtain a broker's license, the individual must have a valid agent's license and post a bond of not less than $15,000 in favor of the State of North Carolina.

Consideration

This is the exchange of something of value by both parties. Information provided by the applicant is legally considered to be a part of the consideration.

Definitions

This part of the contract explains the meaning of important terms found in the contract, such as who is a named insured, who is an insured and what constitutes a premises.

Standard Fire Policy - SFP

This policy was the first property insurance policy that was standardized by law. Named Peril policy insuring against direct losses caused by fire, lightning and removal of property to protect it from further damage and Proximate Cause meaning an unbroken chain of events leading from "cause" to "effect".

Continuing Education Requirements

Two years following the biennium in which their license was issued based on the licensee's month and year of birth. 1. 24 hours of continuing education are required for all lines of authority with three of 24 hours covering ethics. 2. 3 Hours of CE on flood insurance every four years.

Direct Writers

Use captive or exclusive agents or employees in the sale of property and liability insurance products. Agents or employees can only represent that particular insurance company.

Certificate Of Authority

When authorized by the state and become known as an Admitted or Authorized company.

Speculative Risk

When there is a chance of gain as well as a chance of loss. Insurance is not intended to protect against this type of risk.

Pure Risk

When there is a chance of loss only.

Open peril (All Risk)

Will insure against all perils unless they are specifically excluded from the coverage. Therefore, the burden of proof lies with the insurer to demonstrate that the loss was caused by an excluded peril. Special means Open peril.

Concealment

Withholding of a material fact. Concealment is not an overt lie, but a failure to state the entire truth.

Inception/Expiration Date

an insurance policy covers the insured starting at 12:01am on the day on which coverage begins and expires at 12:01am on the expiration day of the policy.