mccloskey (3501) topic 4 class notes

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  1. claims adjusting
    the process of determining coverage, legal liability, damages, and settling the claim.
  2. ______is over half of the insurer's costs.(very important to their profitability)
    claim function
  3. What employees are some of the most visible to customers?
    employees in claims
  4. goals of claim function:(2)
    • 1.comply with the contractual obligation
    • 2. support the profit goal
  5. What is it important to keep in mind when settling claims with a customer?
    • It is important to keep in mind that while claims are routine for the insurer, they are not for the insured.
  6. Compliance with contractual obligation.
    goal of claim function.When an insurer pays, defends, or indemnifies a claimant.
  7. Compliance with a contractual obligation must be______,_______,__________.
    fair, prompt, and equitable
  8. claim filed directly.
    When a claim is filed against the insurer.
  9. Claim filed indirectly
    claim is filed to a third party(negligence)
  10. What is insurance fraud?
    Deception or misrepresentation of material fact to the insurer or insurance agent.
  11. How is insurance fraud defined by the states?
    Each state defines insurance fraud differently.
  12. What are two things that insurance fraud impacts?
    • the premium
    • Also affects the placement or underwriting of risk
  13. _______ results in overpayment of a claim or payment of a claim that shouldn't have been paid.
    Insurance fraud
  14. Hard fraud
    The act of deliberately faking an accident, injury, theft, arson, or another loss in an attempt to collect money that you not entitled to.
  15. T/F insurance fraud is sometimes acted on by people alone.
  16. More recently, how has hard fraud often been performed?
    Through organized crime involvement where elaborate crime rings stage elaborate insurance fraud schemes.
  17. When normally honest people tell "little white lies" to their insurance company.
    soft fraud
  18. soft fraud
    When normally honest people tell "little white lies" to their insurance company.
  19. The act of deliberately faking an accident, injury, theft, arson, or
    another loss in an attempt to collect money that you not entitled to.
    hard fraud
  20. claim is filed to a third party(negligence)
    claim is filed indirectly
  21. When a claim is filed against the insurer.
    claim is filed directly
  22. goal of claim function.When an insurer pays, defends, or indemnifies a claimant.
    compliance with contractual obligation
  23. the process of determining coverage, legal liability, damages, and settling the claim.
    claims adjusting
  24. 1.comply with the contractual obligation
    2. support the profit goal
    the goals of claim function
  25. In________. people who would never think of robbing a bank, stealing a car, or burglarizing a home find temptations of "easy money" from insurance fraud tough to resist.
    soft fraud
  26. Many people think that_________is just harmless fudging.
    soft fraud.
  27. ________ is committed by people from a wide range of occupation, socioeconomic statuses, walks of life, etc.
    Insurance fraud
  28. More than ___of every____ bodily-injury claims from car crashes involves fraud.
    one of every three
  29. approximately,___to___ cents of every dollar paid for bodily injury claims from auto policies involves fraud or claim buildup.
    17-20 cents
  30. Fraud accounts for ______% of U.S. healthcare expenditures.
  31. Why is fraud so prevalent?(3)
    • Insurers sometimes back off
    • companies unwittingly encourage fraud by paying suspicious claims too easily.
    • It is cheaper to pay some smaller suspect claims than fight in court
  32. Companies unwittingly encourage_________ by paying suspicious claims too early.
  33. T/F It is cheaper to pay some smaller suspect claims than fight in court.
  34. Fraud is also prevalent because it is considered to be a very________ crime.
    low risk
  35. The risk involved in committing insurance fraud is very_____.
  36. How do insurance cheaters view insurance fraud?
    They view it as a very low risk, high reward game, safer than other crimes that are more dangerous with more serious penalties.
  37. What is a reason why many prosecutors are hesitant when dealing with insurance fraud?
    They are hesitant because some states still don't have specific insurance fraud laws.
  38. What are jail sentences often like for those who commit insurance fraud?
    they are often light, with courts often reserving space in overcrowded prisons for people convicted of more violent crimes.
  39. Insurance fraud cases have a _______ legal priority.
  40. What types of crimes do prosecutors give top priority to?
    Prosecutors often give top priority to combating drugs, violence, and other high-profile crimes
  41. What is the perception of insurance crimes?
    The perception of insurance crimes is that they are often too complex and technical to successfully prosecute.
  42. Why do people tolerate fraud?
    people tolerate fraud because they believe that insurance fraud is often justified.
  43. tolerance does tolerance of fraud perpetuate?
    The tolerance of fraud perpetuates the social acceptability of fraud, and makes it much easier for people to justify committing insurance fraud.
  44. How does the claims function support the profit goal?(3)
    • it controls expenses
    • ensures that claims are not overpaid
    • protects reputation and goodwill of the insurer.
  45. What can happen if claims go unpaid?
    Unpaid claims can result in angry policyholders, litigation or regulation issues-costing business
  46. How does the claims function support marketing?(5)
    • by providing customer satisfaction data
    • settlement information
    • loss data for a renewal
    • highlight positive claim performance for an account
    • inform of court rulings or settlements
  47. ______ helps to understand the risk/potential for future losses.
    post-loss evaluations
  48. How can the claims function help support the underwriting function?(5)
    • post-loss evaluations to help understand the risk/potential for future losses.
    • adjust underwriting assumptions for a particular risk or class of risk
    • evaluate the underwriting decision for a specific case
    • identify trends
    • take corrective action-loss control
  49. How can the claims function support the actuarial function?
    • losses paid
    • losses being reserved for, but not paid.
    • assisting in the IBNR calculation
  50. Who does the claims department interact with?
    • public(policyholders and claimants)
    • claimants attorneys
    • defense attorneys
    • state regulators(including licensing and adjusters)
  51. investigate, evaluate, and negotiate coverage
  52. Adjuster
    investigate, evaluate, and negotiate coverage
  53. 6 types of insurance adjusters
    • field vs inside
    • employee vs contractor
    • general vs specialist
  54. Independent adjuster
    An adjuster that handles claims on a case by case basis. They are not an employee of the insurer
  55. How are independent adjusters paid?
    they are paid a fee
  56. t/f sometimes independent adjusters are a part of a firm-owned by a broker.
  57. Are independent adjuster helpful during catastrophic events?
    yes because large companies can outsource the function.
  58. do independent adjusters handle the insured during the claims process?
  59. Public adjuster
    Represents the policyholder and negotiates a settlement with the insurer
  60. How are public adjusters paid?
    They are paid a fee or percentage of the settlement (by policyholder)
  61. types of specialist adjusters(5)
    • catastrophe
    • pollution
    • marine
    • origin and cause
    • material damage
  62. How does a specialist adjuster deal with material damage.
    they appraise costs to repair or make determination to fix or replace.
  63. what is origin and cause adjusting
    insurance adjusting for fire
  64. Methods specialist adjusters use to appraise damage(5)
    • reconstruction
    • private investigators
    • accountants
    • medical cost containment
    • engineers
  65. When would a specialist adjuster use reconstruction to appraise damage on a claim?
    during auto accidents
  66. 4 steps in the claims adjusting process
    • 1. determine if coverage exists
    • 2. determine loss cause and legal liability
    • 3. determine amount of damages or loss
    • 4 settle the claim
  67. 1st step in the claims adjusting process
    determine if coverage exists
  68. 2nd step in the claims adjusting process
    determine loss cause and legal liability
  69. 3rd step in the claims adjusting process
    determine amount of damages or loss
  70. 4th step in the claims adjusting process
    settle the claim
  71. What is the first thing an adjustor should ask themselves when determining coverage?
    • is this loss specifically agreed to be covered?
    • (found by reviewing the clauses of a policy)
  72. what are exclusions(when determining coverage)(4)
    • coverage provided elsewhere
    • coverage not usually needed(so not included in regular policies)
    • under control of policyholder-liability
    • uninsurable
  73. prompt response(when determining coverage)
    Insured must be notified immediately if coverage is being denied or informed about the process during investigation
  74. reservation of rights letter
    • A letter that;
    • notifies the insured that the claim is being investigated
    • or that a coverage problem may exist
  75. How does the reservation of rights letter protect the insurer?
    it protects the right to deny the claim in the future
  76. Non-waiver agreement
    signed by policyholder acknowledging claim investigation and insurers right to deny.
  77. Declaratory judgment
    Court ruling that determines if coverage should apply
  78. Determine legal liability
    • 2nd step of the adjusting process
    • determines who is legally obligated to pay damages
  79. How are legal liability determinations settled?
    They are settled by court or through insurance company investigation
  80. What will an insurer try to do before a claim goes to court.
    they will try to attempt an out of court settlement
  81. When it comes to property damages, an insurer can do one of three things, which are to either___________,______________,or ________it.
    pay,repair, or replace
  82. When an insurer replaces something, they use ______ when determining replacement cost.
    actual cash value
  83. types of bodily injury damages(5)
    • medical expenses(special damages)
    • loss of earnings(special damages)
    • pain and suffering(general damages)
    • punitive damages
    • extra contractual damages
  84. medical expenses are considered to be_______damages
  85. loss of earnings are considered to be_______damages
  86. pain and suffering is considered to be a_______damage.
  87. extra contractual damages
    punishment damages awarded to insured due to insurer acting in "bad faith" over a claim.
  88. can a court dictate to an insurer who to pay claims to?
  89. Three options when settling a claim
    • deny claim
    • deny part of claim and pay part
    • negotiate amount of claim
  90. What is an extra step taken to settle property claims?
    they will have the insured sign sworn proof of loss
  91. sworn(synonym)
  92. What extra step is taken when settling third party claims?
    obtain a release from a claimant
  93. Why are 3rd party claimants made to sign a release
    it prevents the claimant from coming back to collect more money
  94. What types of amounts are reserved?
    • Amounts anticipated to pay a particular claim
    • Amounts owed (will be owed) to policyholder
    • Funds required to pay insurer expenses (Related to that claim)
    • Estimating final losses is key adjusting skill
  95. Loss adjustment expenses
    When claim costs can be identified with a particular claim
  96. What are known as defense and
    cost containment expenses?
    loss adjustment expenses
  97. Amounts related to overhead claim expenses are known as:
    adjusting and other incurred expenses
  98. What does ibnr stand for?
    incurred but not reported
  99. IBNR
    The time lag of not reporting claims
  100. 4 reserve techniques?
    • Judgement method
    • average value method
    • stair stepping
    • litigation
  101. Judgement method
    Claims adjuster or claims specialist sets the number based on their experience and opinion
  102. Average Value Method
    Sets a predetermined dollar amount as a reserve for each claim in a particular class as it is reported
  103. what is the average value method good for?
  104. What is the average value method not good for?
  105. stair stepping
    Incremental increases in the reserves of the claim by adjuster or claims rep
  106. do material facts matter when using stair stepping?
  107. ______ is sometimes a result of incorrect reserving early in the claim
    stair stepping
  108. reserving techniques(litigation)
    Making a decision on whether to fight or settle a liability claim
  109. nuisance settlements
    Weak cases that are paid out a settlement to avoid the cost of a lawsuit
  110. Alternative Dispute Resolution
    a way to settle without court
  111. Arbitration
    Both parties agree to decision made by arbitrator
  112. types of alternative dispute resolution
    • mediation
    • negotiation
  113. Who sets the unfair claims settlement practices
    the naic
  114. what happens to insurers who use unfair claims settlement practices?
    • Insurer can receive fines
    • State can suspend or revoke insurer license, etc.
  115. examples of Improper Insurance claims Settlement Practices
    • Refuse to pay claims without conducting reasonable investigation
    • Knowingly misrepresenting relevant facts and provisions related to coverage
    • Failure to promptly affirm or deny coverage
    • Failure to provide forms necessary to file a claim
  116. In property claims settlement, who has insurable interest?
    • ownership
    • Landlord and Tenant
    • Bailor and Bailee
    • Mortgager and Mortgagee
  117. In property claims settlement, what must be determined?
    the causes of loss and possible exclusions
  118. In property claims settlement of intentional acts(such as arson) what must an adjuster prove?
    • Motive on the insured's part
    • opportunity on the insured's part
  119. What are some evidence of arson being committed for insurance fraud purposes?
    • the building was for sale
    • building was recently purchased
    • family pet was coincidentally absent
    • fire occurs after 11 pm on a weekend or holiday(no one around to call 911)
    • sentimental items missing from the scene
    • physical signs of flammable materials or other items that start fire
  120. what are the two methods used to determine the amount an item is worth?
    acv vs replacement ratio
  121. is acv and replacement ratio determined before or after a loss?
  122. what are the duties of the insured?
    • Provide prompt notice
    • Protect Property (Ex: Call 911 in case of
    • fire)
    • Assist with the adjustment process (Don’t
    • hide anything)
    • Provide Proof or Loss
    • Submit to exam under oath
  123. who retains the right to property if full value is paid to the insured?
    the insurer
  124. how does an adjuster attempt to minimize losses?
    by determining salvage value and retaining the right of property is full value is paid to the insured
  125. two types of business income claim settlements
    prospective and retrospective settlements
  126. prospective settlement
    giving the insured the moolah before the property is repaired
  127. retrospective settlements
    giving the insured the moolah after property is repaired and operations have resumed
  128. requirements of a loss
    • Direct damage to property
    • Result of a covered cause of loss
    • (primary)
    • Occurred at described premises
    • Suspension of operations and/or
    • incurring extra expense
  129. Business income terms
    • net income
    • continued normal operating expenses
    • extra expense
  130. extra expense
    to avoid or minimize the shut down and continue operations
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mccloskey (3501) topic 4 class notes
topic 4
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