Overview of the Claim Function

Question 1

Third-party administrator (TPA)

Answer 1

An organization that provides administrative services associated with risk financing and insurance

Question 2

Independent adjuster

Answer 2

An independent claim representative who handles claims for insurers for a fee

Question 3

Loss ratio

Answer 3

A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses

Question 4

Incurred losses

Answer 4

The losses that have occurred during a specific period, no matter when claims resulting from the losses are paid

Question 5

Earned premiums

Answer 5

The portion of written premiums that corresponds to coverage that has already been provided

Question 6

Expense ratio

Answer 6

An insurer’s incurred underwriting expenses for a given period divided by its written premiums for the same period

Question 7

Nonwaiver agreement

Answer 7

A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy

Question 8

Reservation of rights letter

Answer 8

An insurer’s letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it

Question 9

Individual case method

Answer 9

A method of setting reserves based on the claim’s circumstances and the claim representative’s experience in handling similar claims

Question 10

Roundtable method

Answer 10

A method of setting reserves by using the consensus of two or more claim personnel who have independently evaluated the claim file

Question 11

Average value method

Answer 11

A case reserving meted that establishes a predetermined dollar amount of reserve for each claim as it is reporte

Question 12

Formula method

Answer 12

A method of setting claim reserves by using a mathematical formula

Question 13

Expert system method

Answer 13

A method of setting reserves with a software application that estimates losses and loss adjustment expenses

Question 14

Loss ratio method

Answer 14

A loss reserving method that establishes aggregate reserves for all claims for a type of insurance

Question 15

Stairstepping

Answer 15

Incremental increases in claim reserves by the claim representative without any significant change in the facts of the claim

Question 16

Subrogation

Answer 16

The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss

Question 17

Mediation

Answer 17

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a mutually agreeable settlement

Question 18

Arbitration

Answer 18

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which can be final and binding

Question 19

Mini-trial

Answer 19

An alternative dispute resolution method by which a case undergoes an abbreviated version of a trial before a panel or adviser who poses questions and offers opinions on the outcome of a trial, based on the evidence presented

Question 20

Summary jury trial

Answer 20

An alternative dispute resolution method by which disputing parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel of mock jurors who decide the case

Question 21

Breach of contract

Answer 21

The failure, without legal excuse, to fulfill a contractual promise