Finance 431: Property-Liability Insurance Lecture 5: Claims Adjusting

Claims Adjusting Objectives Complying with contractual promise Achieving profit objective Collection of information Marketing Underwriting Actuarial Definitions First party = claims by policyholder Third party = claims against policyholder

A homeowners policyholder’s house burns down when his furnace overheats. What type of claim does this represent? A)First party only B)Second party only C)Third party only D)First party and third party E)None of the above

An auto insurance policyholder causes an accident that damages his car and another driver’s car. What type of claim does this represent? A)First party only B)Second party only C)Third party only D)First party and third party E)None of the above

An auto insurance policyholder is in an accident that is caused by an uninsured driver. This policyholder has uninsured motorist coverage. What type of claim does this represent? A)First party only B)Second party only C)Third party only D)First party and third party E)None of the above

Claims Environment External General public Plaintiffs’ attorneys Defense attorneys State regulators Licensing Consumer complaints Market conduct audits Unfair claim settlement practices legislation Documentation Communications Settlement standards Internal Marketing Underwriting Legal Training

Organization of Claims Function Physical Organization Centralized/decentralized By product or line of business Personal/commercial Property/liability

Organization of Claims Function Management Structure Claims managers Examiners Supervisors Adjusters Independent adjusters Producer claim services Public adjusters Other claim personnel Cause and origin experts Appraisers Reconstruction experts Private investigators Rehabilitation experts

Which person within the claims department is responsible for negotiating the value of the claim with the claimant? A)Claims manager B)Examiner C)Supervisor D)Adjuster E)None of the above

Which of the following individuals could a claimant hire to help negotiate a claim with an insurance company? A)Examiner B)Independent adjuster C)Producer D)Public adjuster E)None of the above

Claim Adjusting Process Three Questions Is the loss covered? Is the policyholder or insurer legally liable? What are the damages?

Is the Loss Covered? Insuring agreement Exclusions Conditions Response to coverage issues Reservation of rights letter Filing for declaratory judgment action

The State Farm auto insurance policy does not cover accidents when you are driving in Malaysia based on which of the following? A)Insuring agreement B)Exclusions C)Conditions D)Reservation of rights E)None of the above

Is the Policyholder or Insurer Legally Liable? Sources of liability Statutes Contracts Torts Intentional Negligence Strict or absolute liability Investigation of liability Statements Inspections Document review

What are the Damages? Property damage Bodily injury damages Medical Loss of earnings Pain and suffering Consortium (Sex, society and services) Future damages Punitive damages Survival and wrongful death Extra-contractual damages

If an insurance company refused to settle a third party claim within policy limits and the policyholder were later held liable for more than the policy covered, which provision might require the insurer to pay the entire claim? A)Future damages B)Punitive damages C)Survival and wrongful death D)Extra-contractual damages E)None of the above

Loss Reserving Case reserves Judgment Average value Tabular IBNR (Incurred But Not Reported) Reserving problems Stair-stepping Inconsistency

Claim Settlement Pre-settlement negotiation Persons involved Agent Policyholder Claimant Witnesses Attorneys Negotiation of settlement Denial of claims

Settlement Documents Proof of loss General release Joint tortfeasor release Covenant not to sue High/low agreements Release for injury to a minor Parent’s release and indemnity agreement Nominal releases Release draft Telephone recorded releases

Litigation Alternatives to litigation Arbitration Mediation Rent-a-judge Settlement conferences Summary jury trials Selection and direction of outside attorneys Decisions relating to defense Defend or settle Nuisance settlements Subrogation

Measuring Claim Performance Financial measures Loss ratio Accuracy Consistency Claim-handling performance Turnover of claims Average cost of settlement Litigation rates Average caseload Staff turnover