Basics of Insurance Claims and Property Claim Adjusting: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Insurance Operations, Regulation, and Statutory Accounting, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:

Myhr, A.E.; and Markham, J.J. Insurance Operations, Regulation, and Statutory Accounting (Second Edition). American Institute for Chartered Property Casualty Underwriters. 2004. Chapter 8, pp. 8.40-8.41, Chapter 9, pp. 9.3-9.8.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-63-1. Which of the following statements about claims in insurance are true? More than one answer may be correct.

(a) For many insureds, the insurer's claim adjusters are the only insurer representatives with whom the insureds have contact after the policy has been issued.

(b) If a claim goes to trial, the claim adjuster typically manages the insurer's defense counsel.

(c) Insurer claim offices are usually centralized in one location so as to enable rapid coordination among the various offices.

(d) Independent adjusters are best used for small, routine claims, on which the insurer should not expend the time and resources of its specialized internal staff.

(e) Many insurers employ independent adjusters as a part of their normal business operations.

(f) Higher levels of claim settlement authority are typically granted to insurer employees and representatives on the basis of seniority - i.e., length of time spent with the company.

(g) The claim adjustment process for property and liability claims focuses on essentially the same attributes.

Solution S5-63-1. This question is based on the discussion in Myhr and Markham, pp. 8.40-8.41. The following answers are correct:

(a) For many insureds, the insurer's claim adjusters are the only insurer representatives with whom the insureds have contact after the policy has been issued.
(b) If a claim goes to trial, the claim adjuster typically manages the insurer's defense counsel.
(e) Many insurers employ independent adjusters as a part of their normal business operations.

Choice (c) is not correct; insurer claim offices are typically located in close proximity to policyholders, so as to enable easier provision of service.

Choice (d) is not correct; independent adjusters are often used for complex claims that require specialized expertise. Some independent adjusters may specialize in handling certain types of claims for which the insurer lacks internal expertise.

Choice (f) is not correct; higher levels of claim settlement authority are typically granted to insurer employees on the basis of responsible use of authority that had already been granted. Experience with the company may be a factor that is considered, but strict seniority considerations are seldom used.

Choice (g) is not correct; there are considerable differences in the claim adjustment process between property claims and liability claims. Property losses are primarily objective and relatively straightforward to quantify. The largest component of liability losses is subjective - e.g., losses due to "pain and suffering" and similar harms.

Problem S5-63-2. List four questions that a property claim adjuster would need to answer in handling virtually any property claim.

Solution S5-63-2. Six such questions are mentioned by Myhr and Markham, p. 9.3:

1. "Who has an insurable interest in, and who is insured with respect to, damaged property?"
2. "What property is insured under a policy, where is it insured, and during what time period?"
3. "Against what causes of loss does the insurance protect?"
4. "What is the dollar amount of the loss?"
5. "What are the insured's duties after a loss?"
6. "What procedures must the adjuster follow to settle the claim?"
Any four of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-63-3. Define the following kinds of interest in property:

(a) Sole ownership;
(b) Joint ownership;
(c) Tenancy by entireties;
(d) Ownership in common.

(e) Name three kinds of interests in property, aside from ownership interest, which can exist.

Solution S5-63-3.

(a) Sole ownership is a situation where the "owner has complete interest in the property" (Myhr and Markham, p. 9.4).

(b) Joint ownership is "a form of ownership in which two or more owners have an indivisible interest in property" (Myhr and Markham, p. 9.4).

(c) Tenancy by entireties is "a form of joint tenancy ownership in which the co-owners are husband and wife, and when one spouse dies, property is passed to the surviving spouse" (Myhr and Markham, p. 9.4).

(d) Ownership in common is "a form of ownership in which two or more owners each have an identifiable fractional interest in property" (Myhr and Markham, p. 9.4).

(e) The following three non-ownership interests in property are mentioned by Myhr and Markham, pp. 9.4-9.5:
1. Lessees of property, who "have an interest in the use of property for the life of the lease" (Myhr and Markham, p. 9.4).

2. Custodians of property: This group includes bailees, warehouse employees, and carriers. They "have an interest in the property to the extent of their fees and for their legal liability for the property's safe return to its owner" (Myhr and Markham, p. 9.4).

3. Security interests, where the secured party is most often "a creditor of the property owner" (Myhr and Markham, p. 9.5).

Problem S5-63-4.

(a) What two questions must a claim adjuster address when handling claims that involve a landlord-tenant relationship?

(b) Generally, what entities are the only ones entitled to make a claim under a property insurance policy?

(c) What are loss payees?

Solution S5-63-4.

(a) When handling claims that involve a landlord-tenant relationship, a claim adjuster must address the following two questions, discussed by Myhr and Markham, p. 9.6:

1. "What are the parties' respective interests in the property under the lease?"

2. "What rights does each party have under the applicable insurance policy in question?"

(b) As discussed by Myhr and Markham, p. 9.7, generally, only the following parties are entitled to make a claim under a property insurance policy:

1. The "first named insured" or "named insured";
2. A spouse of the "named insured";
3. A legal representative of the named insured, in the event of said insured's death.

(c) Loss payees are "parties, such as owners of leased office equipment, who do not have any rights greater than or independent of the policyholder, but whose names must be included on any claim settlement check" (Myhr and Markham, p. 9.7).

Problem S5-63-5.

(a)What is a fixture?

(b)What three questions can adjusters ask to determine whether a fixture gets classified as real property or personal property?

(c)Name three courses of action that a claim adjuster should always take before denying a claim.

Solution S5-63-5.

(a) A fixture is "personal property that has become attached to and part of real property" (Myhr and Markham, p. 9.8).

(b) The following three questions regarding the classification of fixtures are discussed by Myhr and Markham, p. 9.8:

1. "How permanently attached to the real property is the fixture?"
2. "Is the fixture well-adapted to the real property?"
3. "What was the intent of the owner?"

(c) The following three courses of action with regard to claim denials are mentioned by Myhr and Markham, p. 9.8:

1. The adjuster should check the exact policy language.
2. The adjuster should provide a plausible and verifiable explanation to the insured for why the claim has been denied.
3. The adjuster should provide the claim denial in writing to the insured.

There may be other courses of action that are advisable in all circumstances; these would also constitute valid answers.

See other sections of The Actuary's Free Study Guide for Exam 5.