AIC 300 exam with correct 100% answers 2024

Indemnify - answers-To restore a party who has sustained a loss to the same financial position that party held before the loss occurred. Third-party administrator (TPA) - answers-An organization that provides administrative services associated with risk financing and insurance. Claims representative - answers-A person responsible for investigating, evaluating, and settling claims. Public adjuster - answers-An outside organization or person hired by an insured to represent the insured in a claim in exchange for a fee. Premium audit - answers-Methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided. Quantitative Audit Factors - answers-Timeliness of reports, reserving and payments Qualitative Audit Factors - answers-Realistic reserving, accurate evaluation of insured's liability and follow-up on subrogation opportunity Loss ratio - answers-A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses. Loss adjustment expense (LAE) - answers-The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy. Aaron works for a multi-line insurer. He works with insurance producers and applicants to evaluate new business submissions and conduct renewal underwriting. Aaron is a A. Personal lines underwriter. B. Line underwriter. C. Staff underwriter. D. Public underwriter. - answers-B. Line underwriter. This describes the duties of a line underwriter, rather than a staff underwriter. There is not enough information to determine which line of business is being written. A public underwriter does not exist. Line underwriters evaluate new submissions and perform renewal underwriting, usually by working directly with insurance producers and applicants. Staff underwriters, meanwhile, manage risk selection by working with line underwriters and coordinating decisions about products, pricing and guidelines. Hugo is conducting an audit of a branch office claims operation. He is evaluating timeliness of reports, number of files opened, proper releases taken, and accuracy of data entry. Which one of Hugo's metrics is a qualitative audit factor? A. Number of files opened B. Timeliness of reports C. Accuracy of data entry D. Proper releases taken - answers-D. Proper releases taken Which one of the following statements regarding third-party administrators (TPAs) is most accurate? A. TPAs handle claims, keep claims records, and perform statistical analyses. B. TPAs are generally found in an insurer's claims department. C. TPAs are typically used by businesses that have chosen not to self-insure. D. TPAs are employed only by independent adjusting firms. - answers-A. TPAs handle claims, keep claims records, and perform statistical analyses. Steps of Making an Initial Claims Assessment - answers-Acknowledging and Assigning the Claim Identifying the Policy Contacting the Insured or the Insured's Representative How do recorded statements and examinations under oath differ? - answers-An examination under oath is more formal than a recorded statement. Recorded statements are often taken by claims representatives, typically by telephone. Examinations under oath are usually performed by an attorney for the insurer at the insurer's office or a court reporter's office. Effective statements exhibit these qualities: - answers-Coherence—The statement follows a logical sequence. Completeness—The statement is thorough. Objectivity—The statement contains facts relevant to the loss expressed in the interviewee's own words. Seven-Part Method - answers-1. Permission and introduction—date, time, and location of the interview, names of the parties involved in the interview, and an affirmation from the interviewee that the interview is given with permission 2. Identification—identifying information about the person being interviewed, such as name, address, phone number, and driver's license number 3. Setting—answers to questions such as who was involved in the loss, what was involved in the loss, when the loss occurred, where the loss occurred, and why the loss occurred 4. Incident—a step-by-step description of how the loss occurred 5. Post incident injuries/damages—description of the property damage and bodily injuries to individuals 6. Miscellaneous—any information the interviewee wants to add 7. Conclusion—reaffirmation that the statement was taken with permission Reserve - answers-The amount the insurer estimates and sets aside to pay on an existing claim. Individual case method - answers-a method of setting reserves based on the claim's circumstances and the claim representative's experience in handling similar claims Roundtable method - answers-A method of setting reserves by using the consensus of two or more claim personnel who have independently evaluated the claim file Average value method - answers-A case reserving method that establishes a predetermined dollar amount of reserve for each claim as it is reported. Formula method - answers-A method of setting claim reserves by using a mathematical formula. Expert system method - answers-A method of setting reserves with a software application that estimates losses and loss adjustment expenses. Carolina is a claim representative handling a liability claim. She is speaking to the claimant over the phone and has informed him that his statements must be true under penalty of perjury. When completed, she sent a transcription of the conversation to the claimant for him to sign before a notary. Carolina has taken a(n) - answers-Recorded statement Which one of the following methods of establishing case reserves is used most often when there are small variations in loss size for a particular type of claim? A. Roundtable method B. Average value method C. Formula method D. Individual case method - answers-B. Average value method The average value method is used most often when their are small variations in loss size for a particular type of claim, and when claims can be concluded quickly. To determine whether an insurer typically underreserves or overreserves claims, actuaries compare the insurer's paid losses to - answers-The insurer's case reserves. Direct loss - answers-A reduction in the value of property that results directly and often immediately from damage to that property. Indirect loss - answers-A loss that arises as a result of damage to property, other than the direct loss to the property. Pro rata contribution - answers-An approach to other insurance by which the insurers contribute to the loss payment in the proportion to which they contribute to the total amount of coverage purchased (their limits of liability). Which of the following losses might be covered by special damages? Which might be covered by general damages? Medical expenses Pain and suffering Lost wages Disfigurement - answers-Medical expenses and lost wages are specific losses covered by special damages. Losses that do not have a specific economic value, such as pain and suffering and disfigurement, are covered by general damages. Whom should a claims rep notify if a claim's losses will exceed the policy's limits? - answers-If a loss will likely exceed policy limits, a claims rep should notify the insured, as well as a reinsurer for the insurer or an excess insurer for the insured. Insurable interest - answers-An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred. Punitive damages (exemplary damages) - answers-A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages. Compensatory damages - answers-A payment awarded by a court to reimburse a victim for actual harm. Special damages - answers-A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages. General damages - answers-A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific, measurable expenses. Coinsurance clause - answers-A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property's value. Claim payments can be made by - - answers-check, bank draft, or electronic transfer of funds. What Is a Claims-Made Policy? - answers-This means your insurer helps cover claims filed during your policy period. Although most policies are occurrence forms, covering claims that occur during the policy period, some are claims-made forms. Which one of the following types of loss is most likely to involve a claims-made form? A. A homeowners claim due to storm damage. B. An automotive collision claim. C. A homeowners liability claim due to a slip and fall. D. A medical malpractice claim. - answers-D. A medical malpractice claim. Andrew is a claims representative investigating whether coverage applies to a new claim. To help ensure that he considers every facet of the policy before determining coverage, he might use A. The CARE method B. The DARE method. C. The CARD method. D. The DICE method. - answers-D. The DICE method. The Office of Foreign Assets Control requires claims payors to check payees against a database of A. Policyholders of other insurers. B. Those who have collected a payment for the same loss. C. Known perpetrators of insurance fraud. D. Known terrorists and drug traffickers. - answers-D. Known terrorists and drug traffickers. Questions for Determining an Acceptable Dollar Amount - answers-What is the minimum amount I should pay for this claim in good faith? What is the maximum amount I'm willing to settle this claim for? What is the most the other party might demand for this claim without appearing unreasonable? What is the minimum amount the other party might accept for this claim? What should my initial offer be? Techniques for Negotiating Directly With Claimants - answers-Collect and use extraneous information Use tradition sales techniques Perform a needs analysis Set appropriate expectations with the first offer Lean on the evaluation - answers-Having investigated the loss, the claims rep usually has more detailed knowledge of the claim than an attorney or public adjuster. When the claimant's attorney demands a large settlement, the rep should avoid an immediate reaction. Instead, the rep should ask the attorney to explain how the settlement demand value was determined and then listen to the answer. The answer will reflect the extent of knowledge the attorney has about the claim and the level of thought that was put into the demand. The claims rep should insist that any changes in the settlement be based on the facts of the case. Establish strengths and weaknesses - answers-There are strengths and weaknesses in any negotiation. For example, if a house is uninhabitable after a fire, the claims rep can use the insured's desire to be back in his or her home as a bargaining tool. As another example, if an insurer and a public adjuster cannot agree on a settlement amount, a claims rep could suggest an appraisal. This may motivate the public adjuster to settle because the appraisal may result in a lower settlement. Time settlements effectively - answers-Sometimes, the best time to settle is just before the claim proceeds to litigation. Once a claim becomes a lawsuit, the attorney must invest more time in the claim. Even though a higher settlement—and attorney's fee—may result from the litigation, from the attorney's perspective, the prospect of a slightly higher settlement may not be worth the potentially significant amount of extra time he or she has to invest in the case. Entice a reasonable demand - answers-To expedite an acceptable settlement, the claims rep can begin the negotiation by asking the attorney or public adjuster what fair settlement value would settle the case that day. For example, if the claims rep's settlement range is $4,000 to $6,500 and an attorney demands $6,500 to settle the claim that day, the rep can agree to settle the claim rather than waste time starting at the low end of the range. Make concessions cautiously - answers-The claims rep should only make concessions for specific reasons, such as if new information has become available that affects the claim value, the other party has made a concession, or a concession by the claims rep would allow the claim to be settled that day. If the allegations in the complaint do not appear to be covered under the applicable policy, what should the claims rep do? - answers-The claims rep should discuss the coverage issue with coverage counsel before taking any other action and should follow any insurer procedures, such as requesting a managerial review. Reviewing the Summons and Complaint - answers-Determine the time available to respond Identify the parties in the complaint Check how service was handled Determine whether a statute of limitations applies Verify that the jurisdiction and venue are correct Discovery - answers-A pretrial exchange of all relevant information between the plaintiff and defendant. Summons - answers-A document that directs a sheriff or another court-designated officer to notify the defendant named in the lawsuit that a lawsuit has been started and that the defendant has a specified amount of time to answer the complaint. Complaint - answers-The allegations made by a plaintiff in a lawsuit. Service of process - answers-The delivery of a summons and complaint to a defendant by an authorized person. Allegation - answers-A claim made in the complaint by the plaintiff, specifying what the plaintiff expects to prove to obtain a judgment against the defendant. Federal Rules of Civil Procedure - answers-A set of rules established to ensure that civil actions and procedures move through the United States district courts as quickly as possible. Statute of limitations - answers-A law that stipulates the length of time after an event during which legal proceedings (such as a lawsuit or criminal charges) may be initiated. Why do you think it's good for claims reps to read up on case law and court opinions related to the types of claims they handle, even when they're not actively engaged in litigation or trial preparations? - answers-Claims reps may find it helpful to stay abreast of recent court opinions and changes in case law related to the types of claims they handle so they know how specific types of claims and legal defenses are likely to be dealt with in the courtroom moving forward. Pretrial Motions - answers-Motion to dismiss Motion for summary judgment Motion in limine Stare decisis - answers-The principle that lower courts must follow precedents set by higher courts. Motion to dismiss - answers-A request that a court terminate an action because of settlement, voluntary withdrawal, or procedural defect. Motion for summary judgment - answers-A pretrial request asking the court to enter a judgment when no material facts are in dispute and the moving party is entitled to judgment as a matter of law. Motion in limine - answers-A pretrial request that certain evidence be excluded from the trial. Claims rep Lily is negotiating a claim settlement with an unrepresented claimant and wishes to smooth the process. She is matching her demeanor, tone, and mannerisms to those of the claimant. Lily is using which one of the following negotiation techniques? A. Using traditional sales techniques B. Performing a needs analysis C. Collecting extraneous information D. Setting expectations - answers-A. Using traditional sales techniques Kira, a claims representative, receives a summons and complaint from an insured. In reviewing the facts, she has doubts that the insured's applicable policy will provide coverage. She should work with counsel and request a managerial review in order to issue A. An excess letter. B. A reservation of rights letter. C. A countersuit. D. A claim denial. - answers-B. A reservation of rights letter. The insurer will issue a reservation of rights letter stating that it will provide defense only until it can establish that there is no coverage. Why is it important for claims professionals to have a working knowledge of big data and data analytics? - answers-Claims professionals typically study data and analytics to help with their decision making. This knowledge also proves helpful when communicating with data scientists, claimants, and customers. Lastly, it helps claims professionals describe the types of data that best support their decision making, such as fraud indicators. What is an example of a technology that can glean insights from data collected from IoT and telematics devices? - answers-Artificial intelligence (AI) is used to quickly process and make sense of large amounts of data—and to make accurate decisions based on that understanding. As a result, AI is playing an increasingly bigger role in many areas of insurers' operations, such as claims, underwriting, and risk management. AI is essentially a computerized simulation of how the human brain processes data to make judgments and assess situations. The AI process involves programming machines to analyze vast amounts of data and to make predictions about that data based on a set of rules or complex calculations. AI aids insurers in several ways, including automating simple routine tasks, predicting and processing claims, and detecting fraud. Big data - answers-Sets of data that are too large to be gathered and analyzed by traditional methods. Internet of Things (IoT) - answers-A network of objects that transmit data to each other and to central hubs through the internet. IoT Devices - answers-Telematics in Automobiles Sensors in buildings Drones Smartphones and tablets Health trackers Robots High-definition cameras with sensors Telematics - answers-The use of technological devices to transmit data via wireless communication and GPS tracking. Wearable sensor tag - answers-A sensor attached to or embedded in clothing and accessories. The process of data mining has several steps, but the first occurs before the data mining even starts. What do you think that step is? - answers-The first step in the data mining process is to understand what a business wants to achieve by applying data mining to one or more sets of data. This is similar to choosing your target before shooting an arrow—it won't matter how refined your technique is unless you know where to aim. Classification - answers-Categorizing members of a dataset based on known characteristics Regression analysis - answers-A statistical technique that predicts a numerical value given characteristics of each member of a dataset. Association rule learning - answers-Examining data to discover new and interesting relationships. From these relationships, algorithms are used to develop rules to apply to new data. An insurer can explore data to find relationships among its products purchased. cluster analysis - answers-Using statistical methods, a computer program explores data to find groups with common and previously unknown characteristics. An insurer wants to predict which claims to target for fraud investigation. It wishes to do this based on the known fraud indicators: a claimant who threatens to hire an attorney immediately after an accident and a claimant with a history of similar claims. Which data mining technique would the analyst be likely to use? - answers-The analyst would likely use classification because the insurer is predicting the category into which a member of a dataset belongs—namely, the category that indicates the likely existence of fraud. The insurer intends to use characteristics known beforehand: threatening to hire an attorney immediately after the accident and having a history of similar claims with the insurer. Association rule learning and cluster analysis are exploratory techniques and do not rely on categorizing members of a dataset based on known data characteristics. Regression analysis is used to predict a numerical value based on known data characteristics rather than a category. Data mining - answers-The analysis of large amounts of data to find new relationships and patterns that will assist in developing business solutions. Algorithm - answers-An operational sequence used to solve mathematical problems and to create computer programs. Cross Industry Standard Process for Data Mining (CRISP-DM) - answers-An accepted standard for the steps in any data mining process used to provide business solutions. Machine learning - answers-Artificial intelligence in which computers continually teach themselves to make better decisions based on previous results and new data. Now, let's try a calculation based on what we've discussed. A classification tree model correctly determines that 30 percent of claims will turn out to be complex. Random assignment correctly determines that 15 percent of claims will turn out to be complex. Calculate the lift for the model. - answers-The lift is calculated by dividing the model percentage by the nonmodel percentage. Therefore, 30 percent is divided by 15 percent, resulting in a lift of 2. Complex claim - answers-A claim that contains one or more characteristics that cause it to cost more than the average claim. Information gain - answers-A measure of the predictive power of one or more attributes. Classification tree - answers-A supervised learning technique that uses a structure similar to a tree to segment data according to known attributes to determine the value of a categorical target variable. Recursively - answers-Successively applying a model. Root node - answers-The first node in a classification tree. Combination of nodes - answers-A representation of data attributes in a classification tree. Leaf node - answers-A terminal node of a classification tree that is used to classify an instance based on its attributes. Training data - answers-Data that is used to train a predictive model and that therefore must have known values for the target variable of the model. Holdout data - answers-In the model training process, existing data with a known target variable that is not used as part of the training data. Lift - answers-In model performance evaluation, the percentage of positive predictions made by the model divided by the percentage of positive predictions that would be made in the absence of the model. Accuracy - answers-In model performance evaluation, a model's correct predictions divided by its total predictions. Precision - answers-In model performance evaluation, a model's correct positive predictions divided by its total positive predictions. What role do data scientists play in insurance and risk management? - answers-Rather than being concerned directly with pricing and reserving, data scientists study big data with the goal of extracting insights from it that will lead to new or improved insurance products and risk management techniques. Insurance and risk management professionals on a data science team typically provide what type of knowledge? Computer programming Domain Mathematical Statistical - answers-Insurance and risk management professionals on a data science team typically provide domain knowledge. Why do you think a claims representative would be a valuable member of a data science team? - answers-The claims rep would help supply domain knowledge, which would provide the context for the goals of a data mining project and how the results can be applied to generate business solutions. To increase the chances of success from a data analytics project, insurance and risk management professionals must work with data scientists to address several key issues before starting a data analytics project. What do you think these issues are? - answers-All stakeholders should be aligned around these issues before starting a data analytics project: What is the business issue or problem being addressed? How does the project help the organization achieve its goals? What does success look like, and how can it be measured? What are the best data sources for achieving the desired results? How can data scientists access this data? How will the results be stored, and how can stakeholders access them? Answering these questions before a project will provide the data science team with the appropriate context needed to build a model and present findings that will provide business value. In addition, it positions team members as co-collaborators and gives them an engaging business case for why the project should move forward. Actuary - answers-A person who uses mathematical methods to analyze insurance data for various purposes, such as to develop insurance rates or set claim reserves. Data science - answers-An interdisciplinary field involving the design and use of techniques to process very large amounts of data from a variety of sources and to provide knowledge based on the data. Domain knowledge - answers-Information related to the context of the information a data scientist is working with. Which one of the following explains why a computer recursively applies a model? A. To analyze claims data from previous years B. To analyze different splits in the values of attributes C. To determine the probability of a target variable D. To identify attributes that can be used - answers-B. To analyze different splits in the values of attributes A computer recursively applies a model to analyze different splits in the values of attributes. Which one of the following is a data mining technique an insurer applies when it knows what information it wants to predict? A. Machine learning B. Association rule learning C. Classification D. Cluster analysis - answers-C. Classification Classification is a data mining technique an insurer applies when it knows what information it wants to predict. Greatview Insurance wants to predict which auto liability claims will most likely go to litigation, so it can assign them to experienced adjusters early in the process. There are certain known indicators of litigation that Greatview wants to use in the data mining process. Which one of the following data mining techniques would Greatview's analyst most likely use? A. Classification B. Association rule learning C. Cluster analysis D. Regression analysis - answers-A. Classification Because Greatview wants to use known characteristics, the analyst would most likely use classification to predict which auto liability claims will go to litigation. Part of the continuous cycle of data mining is preparing the data to eliminate missing or inaccurate information. This process is called - answers-C. Cleaning. Data should be cleaned as much as possible to eliminate missing or inaccurate information. Hanna is in IT and works on data analytics projects for an insurer. These projects involve analyzing large amounts of data to help underwriting to select risks and price policies. Hanna knows that collaboration between data science, IT, underwriting, and actuary is critical to the success of these projects. In Hanna's experience, as soon as the need for a data project arises, the key to collaborating effectively is to engage which one of the following teams as soon as possible? A. Actuary B. IT C. Data science D. Underwriting - answers-C. Data science Rin works for an insurer designing and using techniques to process large amounts of data from various sources and providing knowledge based on the analysis of that data. Rin is a(n) Select one: A. Ratemaker. B. Data scientist. C. IT professional. D. Actuary. - answers-B. Data scientist. Data science involves experimenting with data using rapidly evolving methods to learn and provide solutions to complex problems. In developing a predictive model for complex claims, the data science team at first uses only a portion of the claims data. This is called A. Trial data. B. Holdout data. C. Training data. D. Provisional data. - answers-C. Training data. Generally speaking, the most common application of predictive modeling in insurance occurs in A. Reinsurance. B. Risk selection. C. Claims handling D. Marketing. - answers-B. Risk selection. In seeking to identify claims that will potentially develop into complex and more costly claims, the data science team at Great Midsouthwest Insurance ranks a series of attributes by their importance to the data model. Which one of the following terms describes the level of predictive power of each attribute? A. Statistical relevance B. Lift C. Precision factor D. Information gain - answers-D. Information gain Samantha, an insurance professional, is home for the holidays when she overhears her cousin, Karl, talking about a co-worker who inflated a workers compensation claim. Karl is sympathetic to his co-worker, saying that he is owed for all the time he has given the company. How should Samantha respond to help change Karl's opinion of insurance fraud? - answers-Samantha could explain that fraud results in higher premiums for all insureds and increased taxes and costs of goods and services. Kim is a claims rep investigating a personal auto liability claim. The insured driver says that he was on his daily commute to work on a busy highway when the accident occurred. However, Kim notices that the insured stated on his application that the covered auto was used only for recreational purposes and was driven less than 5,000 miles per year. What type of fraud might the insured have committed? - answers-The insured may have committed rate evasion, which occurs when insureds make false statements on insurance applications to get lower rates. Insurance fraud - answers-Any deliberate deception committed against an insurer or an insurance producer for the purpose of unwarranted financial gain. Special investigation unit (SIU) - answers-A division set up to investigate suspicious claims, premium fraud, or application fraud. Predictive model - answers-A model used to predict an unknown outcome by means of a defined target variable. Blockchain - answers-A distributed digital ledger that facilitates secure transactions without the need for a third party. Elements of Fraud - answers-- An individual or an organization intentionally makes an untrue representation. - The untrue representation concerns an important or a material fact or event. - The untrue representation is knowingly made. - The untrue representation is intended to deceive. - The victim relies on and acts on the untrue representation. - The victim suffers some detriment, such as loss of money and/or property, as a result of relying on and acting on the untrue representation. An insured borrows fine jewelry from her friends and family. She has it appraised and covered by her homeowners policy. She returns the jewelry to the owners and reports it stolen. She then collects on the insurance. - answers-This is a false claim, a type of hard fraud. A doctor recommends that a patient receive physical therapy three times per week for twelve weeks when three times per week for eight weeks would suffice. - answers-This is a padded claim, a type of soft fraud. An insured buys multiple fire insurance policies on the same house, then intentionally burns the house to the ground and collects the policy limits on several policies. - answers-This is an intentional loss, a type of hard fraud. Material fact - answers-A fact that is significant to a decision or matter at hand. Hard fraud - answers-Actions that are undertaken deliberately to defraud. Misrepresentation - answers-A false statement of a material fact on which a party relies. Concealment - answers-An intentional failure to disclose a material fact. Staged accident - answers-An accident deliberately caused by a person who intends to feign injury and collect on the ensuing claim. Soft fraud, or opportunity fraud - answers-Fraud that occurs when a legitimate claim is exaggerated. What other steps should Maria take to conduct a balanced investigation based on her suspicion? (Select all that apply.) Have a physical examination conducted of the vehicle to determine whether the allegedly stolen items would fit in the trunk Schedule an examination under oath of Daniel, and require receipts documenting the source of the cash used to purchase the items Ask for a list of stores where the items were bought and contact those stores regarding the purchases Conduct interviews with Daniel's family members to find out whether they were aware of the purchase of the gifts - answers-Physical evidence and records from third parties can confirm or refute the likelihood of fraud. Interviews with family members are not likely to be helpful because they will probably state they did not know of the gifts or corroborate the insured's story. After conducting a balanced investigation, Maria can refer the claim to the SIU if appropriate. Larissa is an auto claim adjuster. Traditionally, she has relied on police reports and witness testimony in her decision making. Recent technological developments give her access to the driver's driving habits, including acceleration, speed, and braking. This data available to Larissa is known as A. Telematics. B. Artificial Intelligence C. Wearables. D. Internet of Things. - answers-A. Telematics. How does professionalism relate to ethics? - answers-Professionalism requires individuals to act knowledgeably, courteously, and empathetically, behaviors that are necessary to properly implement an ethical decision. Role of Ethics and Professionalism in Good Faith - answers-- By satisfying contractual duties and other promises - By maintaining insurers credibility - By complying with legal duty Explain why ethics and professionalism are of utmost importance to claims reps when they are establishing good faith by satisfying contractual duties and other promises. - answers-Ethics and professionalism are of utmost importance to claims reps because they are bound by the insurance contract to act in good faith, and they must act ethically and professionally in keeping the promises specified in insurance policies, as well as those created by law. In insurance transactions, the insured pays a premium in return for the insurer's promise to handle claims in good faith, and the insurance policy states the terms of that promise. In addition to fulfilling the promises outlined in the insurance contract, claims reps must keep any promises made to insureds, claimants, vendors, and their employers. Ethics - answers-The study of what constitutes good and bad behavior, dealing with moral duty and obligation. In investigating a recent liability claim against an insured, Amy, a claims representative, suspected that the claimant was wealthier than his appearance and behavior indicated. After interviewing him about what happened, she failed to add some information in her report to the claim file because she judged it to be false. She also delayed responding to his telephone inquiries. During settlement negotiations, based on her opinion of the claimant's financial situation, Amy rejected his attorney's offer to settle at the policy limits. What elements of good-faith claim handling did Amy violate? - answers-Amy violated the element of unbiased investigation by basing decisions about the investigation and negotiation on her perception of the claimant's dishonesty, particularly because the claimant's financial status was irrelevant to the claim. By omitting some of the claimant's statement, she violated the elements of complete and accurate documentation and fair evaluation. Her refusal to settle based on her perception of the claimant's financial status violated the element of good-faith negotiation, and her delay in responding to the claimant's telephone inquiries may have violated the element of regular and prompt communication. Excess Liability Claims - answers-- The insurer refuses the opportunity to settle within policy limits - The insurer refuses to pursue settlement - The insurer is subject to strict liability Ananya is a claims representative handling a homeowners claim for Chris, an insured. After carefully reviewing the policy, Ananya finds that Chris does not have coverage for his property damage. She lets him know promptly with a carefully worded claim denial letter. A few days later, Chris calls Ananya to let her know he has hired an attorney. Should Ananya worry that her actions will lead to a bad-faith claim against the insurer? - answers-While an attorney's involvement increases the possibility of a bad-faith claim, Ananya should not be overly concerned as long as she has followed good-faith claims handling practices. She fully documented the reason for the coverage denial, which may be important in a lawsuit. Stephanie is a claims representative. She handled a liability claim against an insured small business and was careful to document all correspondence, evidence, estimates, and bills. The claim eventually went to court, the claimant was awarded damages, and the small business sued the insurer for bad faith. Describe how Stephanie's actions may help the insurer defend itself against bad faith. - answers-Stephanie's careful documentation will demonstrate how she and the insurer handled the claim. Activity logs, correspondence, and documentary evidence, such as police reports, damage estimates, and medical bills, can indicate that claims reps, supervisors, and managers are doing their jobs properly, which is part of a successful defense strategy for a bad-faith claim. Tort - answers-A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right. Tortfeasor - answers-A person or an organization that has committed a tort. Contributory negligence - answers-A common-law principle that prevents a person who has been harmed from recovering damages if that person's own negligence contributed in any way to the harm. Comparative negligence - answers-A common-law principle that requires both parties to a loss to share the financial burden of the bodily injury or property damage according to their respective degrees of fault. As a claims representative, some of Sara's goals is to benefit her employer by ensuring the parties to a loss remember details accurately, reassuring the parties that their claims are important, and lessening the chance that the parties will retain attorneys. Sara accomplishes these goals through A. Timely contact with all parties to a claim. B. Effective claims management. C. Regular and prompt communication D. Complete and accurate documentation. - answers-A. Timely contact with all parties to a claim. Timely contact with all parties to a claim. Early contact with parties helps to ensure details are correct, parties feel heard, and don't feel the need for attorneys. Not long after Valteri issued a denial and closed the claim, the insured sued for coverage and alleged bad-faith claim handling against the insurer. Valteri was able to demonstrate for his superiors that he had made a good-faith investigation and determined that the claim was not covered by the policy. The insurer maintains that Valteri had reasonable justification in fact for denying the claim. The insurer is employing the - answers-A. Debatable reasonable basis defense. Which one of the following statements regarding state versions of the NAIC model act is correct? - answers-A. Some states allow insureds and claimants to bring lawsuits against insurers, while others allow only insureds. Which one of the following best describes the term 'professionalism' as it relates to claims professionals? - answers-C. The behaviors necessary to implement an ethical decision For an excess liability claim to be filed, a final judgment or settlement must have been entered against the insured, and - answers-B. The amount of the judgment must be in excess of the insured's policy limit. For an excess liability claim to be filed, a final judgment or settlement must have been entered against the insured, and the amount of the judgment must be in excess of the insured's policy limit. The insured is not required to have paid the judgment before bringing suit. Tobias is a claims representative who understands the importance of good-faith claims handling, including fair evaluation, good-faith negotiation, complete and accurate documentation, and timely contact with all parties to a claim. Which one of Tobias' good-faith claims handling practices helps his employer because the parties will be more likely to remember details of the loss accurately? A. Timely contact with all parties to a claim B. Good-faith negotiation C. Fair evaluation D. Complete and accurate documentation - answers-A. Timely contact with all parties to a claim Ella sued her insurer and alleged bad-faith claim handling after the insurer settled a claim against her that Ella thought should have been denied. As a result of the settlement, Ella's premium increased. In her suit, Ella claimed that the insurer rushed the investigation and did not take all of her facts into consideration in her defense. While the court found that Ella's argument had merit, it did not award her the full value because it found that Ella had not provided her information to the insurer in a timely manner. The insurer used the defense of A. Comparative negligence. B. Contributory negligence C. Comparative bad faith. D. Debatable reasonable basis. - answers-A. Comparative negligence. Comparative negligence. In states that permit negligence as a basis for a bad-faith claim, most use a comparative negligence approach, reducing the amount of damages that may be awarded. One of Julio's expectations as a claims representative is good-faith claims handling. He keeps insureds informed about the claim because they have that expectation and because they are most likely to make a complaint about bad-faith claim handling. He also wishes to participate in the defense and in discussions about the possibility of settlement. For these reasons, Julio A. Maintains complete and accurate documentation B. Maintains regular and prompt communication. C. Conducts good-faith negotiation. D. Conducts fair evaluations. - answers-B. Maintains regular and prompt communication. Maintains regular and prompt communication. Communicating with all parties to a claim is a crucial aspect of good-faith claims handling and resolution. Martin is in SIU and helps his employer, a multi-line insurer, to detect fraudulent claims. He is using a technology that enables insurers to share fraud-related information. This distributed digital ledger that facilitates secure transactions without using a third party is known as A. Telematics. B. The Internet of Things C. A predictive model. D. Blockchain. - answers-D. Blockchain. Hugo is conducting an audit of a branch office claims operation. He is evaluating timeliness of reports, number of files opened, proper releases taken, and accuracy of data entry. Which one of Hugo's metrics is a qualitative audit factor? A. Proper releases taken B. Number of files opened C. Accuracy of data entry D. Timeliness of reports - answers-A. Proper releases taken Mia tracks loss adjustment expense (LAE) as part of her management of the claims department for an insurer. Mia considers LAE to be the A. Cost to investigate, defend, and settle claims. B. Paid portion of claims. C. Total incurred amount of claims. D. Total amount of loss reserves of all claims. - answers-A. Cost to investigate, defend, and settle claims. Kira, a claims representative, receives a summons and complaint from an insured. In reviewing the facts, she has doubts that the insured's applicable policy will provide coverage. She should work with counsel and request a managerial review in order to issue A. A reservation of rights letter. B. An excess letter. C. A countersuit. D. A claim denial. - answers-A. A reservation of rights letter. As methods of communication evolve, it's important for claims professionals to remember that any written claims communication may be A. Misinterpreted B. Edited later. C. Replaced with verbal communication. D. Subpoenaed. - answers-D. Subpoenaed. Hanna is in IT and works on data analytics projects for an insurer. These projects involve analyzing large amounts of data to help underwriting to select risks and price policies. Hanna knows that collaboration between data science, IT, underwriting, and actuary is critical to the success of these projects. In Hanna's experience, as soon as the need for a data project arises, the key to collaborating effectively is to engage which one of the following teams as soon as possible? A. Data science B. Actuary C. Underwriting D. IT - answers-A. Data science Tobias is a claims representative who understands the importance of good-faith claims handling, including fair evaluation, good-faith negotiation, complete and accurate documentation, and timely contact with all parties to a claim. Which one of Tobias' good-faith claims handling practices helps his employer because the parties will be more likely to remember details of the loss accurately? A. Fair evaluation B. Timely contact with all parties to a claim C. Complete and accurate documentation D. Good-faith negotiation - answers-B. Timely contact with all parties to a claim The claims litigation process begins with the receipt of A. A civil violation notice. B. A settlement offer. C. A notice of claim D. A summons and complaint. - answers-D. A summons and complaint. As a claims representative, some of Sara's goals is to benefit her employer by ensuring the parties to a loss remember details accurately, reassuring the parties that their claims are important, and lessening the chance that the parties will retain attorneys. Sara accomplishes these goals through A. Effective claims management. B. Complete and accurate documentation. C. Timely contact with all parties to a claim. D. Regular and prompt communication. - answers-C. Timely contact with all parties to a claim. Hanna is in IT and works on data analytics projects for an insurer. These projects involve analyzing large amounts of data to help underwriting to select risks and price policies. Hanna knows that collaboration between data science, IT, underwriting, and actuary is critical to the success of these projects. In Hanna's experience, as soon as the need for a data project arises, the key to collaborating effectively is to engage which one of the following teams as soon as possible? A. Underwriting B. Actuary C. Data science D. IT - answers-C. Data science Generally speaking, the most common application of predictive modeling in insurance occurs in A. Risk selection. B. Claims handling C. Marketing. D. Reinsurance. - answers-A. Risk selection. Larissa is an auto claim adjuster. Traditionally, she has relied on police reports and witness testimony in her decision making. Recent technological developments give her access to the driver's driving habits, including acceleration, speed, and braking. This data available to Larissa is known as A. Wearables. B. Internet of Things. C. Telematics. D. Artificial Intelligence. - answers-C. Telematics. Kira, a claims representative, receives a summons and complaint from an insured. In reviewing the facts, she has doubts that the insured's applicable policy will provide coverage. She should work with counsel and request a managerial review in order to issue A. A reservation of rights letter. B. A claim denial C. A countersuit. D. An excess letter. - answers-A. A reservation of rights letter. Alva works for an international, multi-line insurer. She helps her company to manage risk selection by working with other underwriters and coordinating decisions about products, pricing, and guidelines. Alva is a A. Staff underwriter. B. Master underwriter. C. Chief Underwriting Officer D. Line underwriter. - answers-A. Staff underwriter Staff underwriter. This describes the duties of a staff underwriter. Line underwriter. This describes the duties of a line underwriter, rather than a staff underwriter. There is not enough information to determine which line of business is being written. A public underwriter does not exist. Line underwriters evaluate new submissions and perform renewal underwriting, usually by working directly with insurance producers and applicants. Staff underwriters, meanwhile, manage risk selection by working with line underwriters and coordinating decisions about products, pricing and guidelines. As a part of the first contact with an insured on a property damage claim, a claims representative may provide a blank - answers-Proof of loss form. In a typical scenario, a summons and complaint initiating litigation is received by these parties in which one of the following sequences? - answers-Insured, claims rep, defense counsel In liability claims, the claims rep will require an authorization from the injured party to - answers-Obtain medical records. Erin helps her employer, a multi-line insurer, to determine actual exposure and premium for coverage. She does this by conducting detailed examinations of policyholder operations, records, and accounting. Erin is a(n) A. Underwriter. B. Producer. C. Premium auditor. D. Claims adjuster. - answers-C. Premium auditor. Premium auditor. Premium auditors provide inventory values, contractors' equipment lists, and other facts that are important to the claims function. Because a full or partial denial of a claim may result in a bad-faith lawsuit, a claims representative should A. Carefully document their reasoning for denial. B. Check with the reinsurer before denying a claim. C. Seek a supervisor's approval before denying a claim D. Make every effort to approve each claim. - answers-A. Carefully document their reasoning for denial. Ciara is going to college with the goal of working as a data scientist for an insurer. She will need a strong foundation in mathematics and statistics, computer programming, domain knowledge, and data science. Which one of Ciara's skills will require her to understand the insurance profession to which the data is being applied? - answers-Domain knowledge Antonia has a general liability policy with a self-insured retention of $50,000. The policy has an occurrence limit of $250,000 and an aggregate limit of $500,000. She had submitted one prior claim this policy term for which $100,000 was paid by the insurer. How much will Antonia's insurer pay on a subsequent claim under the same policy period that is valued at $400,000? A. $200,000 B. $250,000 C. $400,000 D. $500,000 - answers-B. $250,000 After the SIR limit had been reached, the insurer was obligated to pay up to the occurrence limit. Through data mining, Goshen Mutual discovers that customers who insure two or more vehicles on a personal auto policy are very likely to buy a personal umbrella policy. Algorithms are then used to identify potential customers who might be interested in purchasing both personal auto and umbrella policies. Which one of the following data mining techniques did Goshen Mutual use? A. Regression analysis B. Cluster analysis C. Classification D. Association rule learning - answers-D. Association rule learning Luke runs his business out of a store front in a commercial building. After a fire destroyed part of the building, Luke made a claim for damages and received a settlement check from the property insurer. This necessarily means that Luke A. Is the owner of the building. B. Is named in the policy declarations or an endorsement. C. Has business interruption coverage. D. Has an insurable interest in the damaged property. - answers-B. Is named in the policy declarations or an endorsement. Jose is handling a workers compensation claim. The injured worker claims to have strained his back when he lifted a box at work. He waited a day to report the injury because he thought he would be okay. He asked Jose when he would be referred to a back specialist and when he could expect his first check. Which one of the injured worker's actions would be the most pertinent fraud indicator to Jose? A. Waiting to report B. Lifting a box C. Asking for referral D. Asking about check - answers-C. Asking for referral Which one of the following is correct with respect to the elements of good-faith claim management? A. When resolving a coverage question, insurers should avoid the appearance of bad faith by dealing only with those lawyers hired to defend the insured. B. If the insured has excess insurance, the claim representative should merely notify the excess insurer of the claim. C. Claim representatives should avoid using policy provisions, such as arbitration clauses, to resolve disputes over the settlement amount. D. Consistent supervision, thorough training, and manageable caseloads help ensure that claim representatives are able to handle claims in good faith. - answers-D. Consistent supervision, thorough training, and manageable caseloads help ensure that claim representatives are able to handle claims in good faith. For resolving a coverage question, insurers should not use those lawyers hired to defend the insured. Consistent supervision, thorough training, and manageable caseloads help ensure that claim representatives are able to handle claims in good faith. Insurers usually send denial letters A. By registered mail. B. By certified mail with a return receipt requested. C. By overnight courier. D. By email to ensure prompt receipt by the insured. - answers-B. By certified mail with a return receipt requested. Among the methods used to pay claims are the issuance of checks and bank drafts. The main difference between the two is that - answers-A. With a bank draft, the bank must verify that the insurer has authorized payment. While staff claims representatives may have a variety of titles, the role is typically defined by two things: having a primary focus on claims and A. Having at least five years of claims experience. B. Being an employee of the insurer. C. Being an outsourced contractor of the insurer. D. A focus on inside claims. - answers-B. Being an employee of the insurer. Sho is a claims representative. With regard to his responsibility for defending his employer against fraud, Sho understands that - answers-Paying fraudulent claims affects insureds. Cristobal is negotiating a settlement with a claimant attorney in a workers compensation claim. The attorney has requested 200 weeks of benefits, which was more than Cristobal was hoping to pay. Cristobal countered with an offer to pay the 200 weeks if the worker would sign an agreement to resign his position and to never reopen the claim. Cristobal's negotiation strategy is an example of A. Leaning on the evaluation. B. Timing settlements effectively. C. Enticing a reasonable demand. D. Making concessions cautiously. - answers-D. Making concessions cautiously. Making concessions cautiously. Claims reps should only make concessions for specific reasons, the other party has made a concession, or a concession would allow the claim to be settled more quickly The allegations contained in a summons and complaint typically serve four purposes: To give notice, reveal facts, formulate legal causes of action and A. Specify a delivery method for the response. B. State the damages sought. C. Identify the opposing attorney(s). D. Suggest an out-of-court settlement. - answers-B. State the damages sought. The allegations contained in a summons and complaint typically give notice, reveal facts, formulate legal causes of action and state the damages sought. Conor is a claims representative whose supervisor is reviewing his claim status notes. The supervisor took exception with one of Conor's notes, which read, "The claimant is obviously lying because his account of how the accident happened keeps changing." The supervisor should advise Conor that this statement is inappropriate because it is not A. Clear. B. Objective. C. Concise. D. Accurate. - answers-B. Objective. Adam manages a claims department for an insurer. He measures the department's performance by best practices, claims audits, customer satisfaction data, and loss ratio. Which one of Adam's measures refers to a system of identified internal practices that claims representatives perform to produce superior performance? A. Customer satisfaction data B. Best practices C. Loss ratio D. Claims audits - answers-B. Best practices Best practices generally refers to a system of identified internal practices that are shared with claims reps and produce superior performance. The NAIC model act specifies that its provisions regarding bad-faith claims are to be enforced by A. NAIC personnel. B. Insurer personnel, on the honor system. C. State insurance departments. D. The Federal Trade Commission. - answers-C. State insurance departments. DaJuan, a claims representative, sets a low case reserve for a seemingly simple claim. A few weeks later it becomes apparent that the initial reserve was too low, and he increases it in order to issue payments. More bills related to the claim arrive a few months later, and he increases the reserve again. This process is known as A. Incremental reserving B. Stairstepping. C. Readjusting. D. Reopening. - answers-B. Stairstepping. Thomas is an attorney who is defending an insurer in a litigated case. He has located documents that show the insured was aware of the issue that cause the injury to the claimant before the accident. Thomas is concerned that this evidence will hurt his case. He should A. File a motion in limine to exclude the evidence B. File a motion to suppress the evidence. C. Preserve the evidence as part of the record. D. Destroy the evidence to make the defense stronger. - answers-C. Preserve the evidence as part of the record. Preserve the evidence as part of the record. An insurer defending a first-party coverage lawsuit could be found liable if evidence is intentionally or negligently lost or destroyed. Which one of the following statements regarding subrogation is most accurate? A. All policies require the insured to cooperate with the insurer in recovering payment through subrogation. B. Most policies require the insured to cooperate with the insurer in recovering payment through subrogation, to include testifying or appearing in court. C. The insured is typically under no obligation to cooperate with the insurer in recovering payment through subrogation. D. The insured typically must cooperate with the insurer in recovering payment through subrogation, but is not required to testify or appear in court. - answers-B. Most policies require the insured to cooperate with the insurer in recovering payment through subrogation, to include testifying or appearing in court. Leila is conducting a claims investigation and is taking a recorded statement from the claimant. She wants a simple yes-or-no answer to prevent the interviewee from explaining the answer further. She asks, "You experienced back pain immediately when you lifted the box, didn't you?" Leila has asked a(n) A. Direct question. B. Leading question. C. Indirect question. D. Open-ended question. - answers-B. Leading question. An insurer that finds it economically impractical to establish a claims office in a given state is likely to use which one of the following to perform the claims handling function? A. Producers B. Third-party administrators C. Public adjusters D. Independent adjusters - answers-D. Independent adjusters Mustafa is a data scientist who is working with a team of underwriting, IT, and actuary to develop a predictive analytics model. The main goal of the project is to translate the insights gained from the model they develop into business action. In Mustafa's experience, the team member that can provide the bridge between the analytics and the business is A. Underwriting. B. Actuary. C. IT. D. Data science. - answers-B. Actuary. Actuary. Actuaries are critically important to this process because they understand the business and the analytics. Which one of the following can be applied over time to refine a model to better predict results? - answers-Machine learning Maja handled a large liability claim that settled above the policy limits. The insured is now charging the claim was handled in bad faith. During their investigation of the bad-faith claim, Maja and defense counsel discovered that the claimant had received the payment from the insurer, but not the amount above the policy limits that was to come from the insured's assets. Which one of the following defenses would Maja's defense most likely invoke? A. Insured's collusion with claimant B. Contributory negligence C. Debatable reasonable basis D. Advice of counsel - answers-A. Insured's collusion with claimant Insured's collusion with claimant. Discovering collusion between the insured and claimant, such as a claimant agreeing not to collect a judgment from the insured's assets, can lead to dismissal of a bad-faith claim. Olivia is careful to keep proper claim status notes when she handles a claim. For example, she makes sure to only include neutral, objective comments about the parties involved. This is because claim notes A. Continue for as long as the claim is open. B. Must be able to speak for themselves. C. Are potentially discoverable in a trial. D. Present a chronology of the life of the claim. - answers-C. Are potentially discoverable in a trial. Are potentially discoverable in a trial. Seemingly innocuous comments can be devastating when read to a jury. Claims rep Miguel is conducting a settlement with a claimant. He constructs his first offer so that the claimant will likely find it undesirable. This becomes the basis of comparison for the second offer that he makes. Miguel understands that people A. Are naturally suspicious of an initial offer. B. Are easier to manipulate with choices. C. Feel empowered when given a choice. D. Will typically accept a second offer. - answers-C. Feel empowered when given a choice. Which one of the following methods of establishing case reserves involves a consensus among multiple claims reps? - answers-Roundtable method