Study 1-11: Narrative Practice Questions

Question 1

Briefly describe the role of a loss adjuster.

Answer 1

• An adjuster is one who solicits the right to negotiate the settlement of or to investigate a loss or claim under a contract or under fidelity, surety, or guaranty bond issued by an insurer or directly or indirectly negotiates, investigates, adjusts, or settles such loss or claim.
• One who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements.
• Some loss adjusters operate as salaried employees of an insurance company, while others operate as independent adjusters, typically for independent adjusting firms that pursue contracts with licensed insurers to manage all or part of a claim.
• The adjuster represents the insurance company with respect to a claim on a policy.
• Loss adjusters must assess and evaluate the amount of damage and then apply the terms of the insurance policy—interpret the policy wording—to determine whether a loss is covered.

Question 2

Under the common law, what are the five essential elements required for a contract to be legally binding?

Answer 2

• Agreement
• Capacity to contract
• Consideration
• Genuine intention
• Legality of object

Question 3

Explain the legal requirements of the principle of indemnity which applies to insurance contracts.

Answer 3

• Insurance policies are based on the principle of indemnity: Claim payments restore policyholders to the same financial position they were in immediately prior to a loss.
• This principle operates to minimize moral hazard—the situation where an insured intentionally causes a loss in order to profit from it.
• Under this principle, the insured is limited to collecting only what was lost. (The insured should not benefit from any loss.)
• If two or more policies are in effect, the insured can only recover the actual amount of the loss collectively from the insurers.
• In Quebec, the Civil Code of Québec (Article 2463) stipulates that an insurer is only obliged to compensate for damages sustained up to the amount of insurance.

Question 4

How do the federal and provincial and territorial governments monitor and regulate the insurance industry?

Answer 4

• The Office of the Superintendent of Financial Institutions (OSFI) is the primary regulator of federally chartered Canadian and foreign property and casualty (P&C) insurance companies. It evaluates their financial soundness and sets their financial reporting requirements.
• The property and casualty (P&C) insurance industry funds a special program, approved by government regulators, to protect policyholders from the financial collapse of an insurer.
• The Property and Casualty Insurance Compensation Corporation (PACICC) is a non-profit organization that responds to claims of policyholders under most policies issued by P&C insurance companies when an insurer becomes insolvent.
• Each province and territory has its own insurance statute to prescribe approved policy forms; the reports insurers must file; the licensing of agents, brokers, and claims adjusters; and financial security requirements for insurers.
• Insurance Bureau of Canada (IBC) has developed a guideline to help member companies meet regulatory requirements arising from this law.

Question 5

Explain individual reserving and how loss adjusters estimate the amount to be put in reserve.

Answer 5

• Individual reserving is used when only the loss adjuster can effectively estimate a reserve.
• This has been the traditional method used for reserving all claims.
• Many insurers still reserve on a case-by-case basis for property, liability, and injury claims.
• To estimate how much should be put in reserve, the loss adjuster assesses each claim and examines each type of coverage under a policy separately.
• For example, under a residential package policy, claims could be submitted under the building, contents, and additional living expense insuring agreements. A loss reserve would be recorded under each category.

Question 6

What is the Canadian Inter-Company Arbitration Agreement?

Answer 6

• The Canadian Insurance Claims Managers Association (CICMA) developed an arbitration mechanism for settling disputes between insurers efficiently and cost effectively.
• Many insurers are signatories to the Canadian Inter-Company Arbitration Agreement (CICAA), which provides the mechanism for insurers to arbitrate their disputes over qualified physical damage subrogation claims among themselves.
• Only the interests of insurance companies are arbitrated and not the interests of the insured, even when he or she is insured by a signatory company.
• The CICMA makes rules and regulations concerning how claims are presented and determined under CICAA.
• It also chooses the arbitration facilities, outlines the policy upon which arbitration panels are selected and appointed, and prescribes territorial jurisdictions.
• It decides the basis upon which program operating expenses will be apportioned; members appointed to various arbitration panels serve without compensation.

Question 7

Define proximate cause and explain how it is assessed.

Answer 7

• A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened.
• It is up to the insured to prove his or her loss under the policy and to show that an insured peril was the proximate cause of the loss
• The proximate cause is the immediate and effective cause of the loss; however, it is not necessarily the last cause before the loss event.
• To qualify as a proximate cause, there must exist an uninterrupted unfolding of events, without the intervention of another main cause from the initial act to the conclusion.
• To assess causation, the loss adjuster applies the theory of proximate cause to determine whether a loss is directly caused by an insured peril or, under a broad-form all-risks policy, whether the loss is excluded.

Question 8

What information is included in the declarations page of the policy?

Answer 8

• who is insured
• how much insurance was purchased and for what lines of coverage (for example, building, contents, additional living expense)
• the policy period
• a description of the insured property
• lists of endorsements or riders that apply
• loss payees
• other identifying information specific to the risk

Question 9

What is an insuring agreement and what does it include?

Answer 9

• The insuring agreement or clause describes the property covered and the circumstances under which coverage will apply.
• The insuring agreement describes the intent of the policy, just what insurance coverage is provided by the policy, and in what limits.
• This part of the policy could include pages of detailed information, including the limitations, exclusions, conditions, and additional coverages

Question 10

List the communication skills loss adjusters require to be effective during the claim process.

Answer 10

• The first principle of professional communication is that professionals approach people with respect, not frustration or anger, even when the other person is wrong or inconsiderate.
• A related principle is that building rapport is important; identifying the needs of others, on as many levels as possible, helps to build rapport and improve communication.
• Loss adjusters can further improve the delivery of claims service by recognizing the criteria customers use to rate service.
• Consumers tend to place a high value on prompt and fair claims handling; loss adjusters who promptly contact claimants when a loss is reported will help create the right environment for the claims experience.
• Adjusters should also recognize that improving how and when they explain the policy contract and claims process to the insured will help in increasing rapport.

Question 11

Body language can play a critical role in understanding the attitudes and motives behind words; provide some examples of non-verbal cues.

Answer 11

• Leaning back is more relaxed and at ease than leaning forward, which conveys intensity and energy.
• A person whose arms are crossed over his or her chest is generally construed as being closed to others.
• Someone who crosses his arms, turns his face from a speaker, yawns, and then looks at his watch is probably giving the speaker a message that he has no interest in what the speaker is saying and thinks the speaker’s turn in the conversation is over.
• Leaning in toward a person suggests a desire to reach agreement.
• When a listener’s arms are initially lying open on a table but are crossed over the chest after the adjuster speaks, it may indicate that the adjuster’s message was not well received.
• Arms crossed over the chest may also mean that the person is listening and concentrating on what is being said.

Question 12

How can self-analysis and observation help adjusters improve their communication skills?

Answer 12

• Adjusters can better understand why they feel what they feel.
• Adjusters can better understand why they behave as they behave.
• It gives them the opportunity to change in order to reach their communication goals.
• An adjuster can identify his or her own style of relating to others and how personal factors interfere.
• Once people recognize their own self-defeating behaviour, they can choose a more positive response to break the cycle of programmed, automatic reactions.

Question 13

List the steps involved in the claims process.

Answer 13

• Insured party reports the loss to broker, agent, or insurer call centre or via a website or mobile application on a smartphone or a similar device.
• Claims handler records preliminary information and asks for details, or insured may complete questionnaire on web-based site or application on a smartphone or a similar device.
• Claims information is reviewed either by a claims handler or by artificial intelligence software
• Claims handler identifies any possible coverage issues that will require further investigation and review and notifies the insured of those potential coverage concerns.
• If a broker is involved, they may accept the loss report and pass this along to the insurer of record.

Question 14

What type of tasks are supporting service providers involved in during the claims transaction?

Answer 14

Depending on the nature of the claim, supporting service providers may be involved in the claims transaction to accomplish the following:

• Assess the damage
• Determine the cause of the loss
• Estimate the cost of repairs and carry them out
• Supply products or services
• Assist in resolving claim disputes

Question 15

When a loss is reported by an insured, what are some elements of a sound response?

Answer 15

• The initial response must acknowledge the insured’s feelings; claims staff must be flexible enough to respond to how the insured is feeling at that particular moment.
• The insured needs to feel that they have been heard.
• The use of tact and diplomacy can reassure and calm a claimant who has experienced a loss.
• Soft skills should be tempered with knowledge of the contract terms and a focus on the facts.
• The claims handler must effectively manage the insured’s expectations about what will happen.

Question 16

What is a proof of loss form?

Answer 16

• A formal statement of facts about a loss.
• The form must be attested to by the claimant.
• The form is specified by the insurer.
• A proof of loss may need to be notarized.
• An insurer must respond to a proof of loss after a specified time period with a formal disposition of the claim (approved or denied).

Question 17

Define non-waiver agreement.

Answer 17

• A non-waiver agreement informs the insured of a coverage concern.
• The agreement is signed by the policyholder after a loss, agreeing that the investigation and determination of the amount of damage by the insurance company shall not be construed as an admission of liability.
• It is used when the insured is in violation of a policy condition and there is a question as to whether or not the company is liable for a loss but it wishes to investigate the loss and determine the amount of damage.
• The non-waiver agreement requires the insured’s signature to give it legal effect; to get the insured’s signature, the loss adjuster must explain the reason for the agreement and what will happen if, in fact, the claim is not covered.
• The non-waiver agreement can be modified to suit the circumstances and type of claim.

Question 18

Define reservation of rights letter.

Answer 18

• A reservation of rights letter is a unilateral assertion by the insurer that it is preserving its options and waiving none of its rights.
• The letter does not bind the insured, because it is not a contractual agreement.
• The reservation of rights letter must be delivered by hand (served and documented with a signature), be sent via registered mail to the last known address on file, or both.
• It allows an insurer to investigate (or even defend) a claim to determine whether coverage applies (in whole or in part) without waiving its right to later deny coverage based on information revealed by the investigation.
• In reserving its rights to later deny coverage, the insurer is merely telling the insured of its concerns that the claim, in whole or in part, may not be covered under the policy, pending further investigation.

Question 19

What are the bases of evaluation adjusters use to manage expectations in the event of a loss?

Answer 19

• Actual cash value—A fair value of the item at the time of loss. Often calculated as the cost to replace an item, less depreciation for age, wear and tear, and depreciation.
• Replacement cost—The cost of an item of like kind and quality.
• Competitive pricing—Having two or more companies compete or bid on a project.
• Safety requirements—When an item is lost or damaged, there may be additional costs required to ensure the replacement or repairs are safe or up to code.
• Court decisions—Adjusters can look to prior court decisions in determining settlement on certain types of losses.

Question 20

What is actual cash value (ACV) and how is it calculated?

Answer 20

Actual cash value (ACV) is a fair value of the item at the time of loss. The following methods can be used to determine a reasonable ACV:

• Replacement or repair cost less depreciation
• Market value (also known as fair market value)—The amount that a person is willing to pay on the open market.
• Income value—Property may have more value to an owner because of the income earned on it, rather than its value were it to be sold.
• Special value to owner—Insurance does not pay for sentimental value.

Question 21

Explain the pair and set clause.

Answer 21

• The clause is found in property policy conditions in all jurisdictions and prevents an insured from claiming the total loss of a pair or set because a part of it has been lost or damaged.
• In common law jurisdictions, this clause appears in the additional conditions to the statutory conditions applicable to property insurance; in Quebec, it appears in the general conditions applicable to property insurance (not all of which are statutory).
• Establishes that loss or damage to one of a pair or set of individual items does not represent the loss of the entire pair or set.
• The individual parts of a set do not necessarily represent equal portions of the total value of the set.
• The loss adjuster negotiates with the insured as to the value of the part in relation to the whole.

Question 22

Define the principle of indemnity.

Answer 22

• The principle that a person should be put into financially the same position after a loss as before, without any added benefit.
• The concept that an insured will be reimbursed for his or her loss (subject only to the policy limit and terms).
• If there is no loss, there can be no indemnity.
• Repair or replacement must occur at the same location and occupancy must be the same.
• A family who lived in a comfortable house before disaster struck should be returned to the same functional level after a claim.

Question 23

In terms of contents coverage, what types of property do not qualify for replacement cost coverage?

Answer 23

• Antiques
• Fine arts
• Paintings
• Statuary
• Memorabilia
• Souvenirs
• Collectors’ items

Question 24

Explain aggregate deductibles and include any exceptions.

Answer 24

• Aggregate deductibles are common for larger commercial risks.
• An aggregate deductible is usually of a substantial amount.
• It is a deductible applied as a whole to all the claims that occur during the policy year.
• Once this aggregate deductible is met, the rest of the insured claims are paid without a deductible.
• There can be exceptions. In some cases, the balance of insured claims may be subject to the deductibles outlined in individual policies.

Question 25

Explain temporary substitute vehicle coverage and provide an example.

Answer 25

• When the insured is driving a temporary substitute vehicle, the insured’s own policy may provide coverage.
• If the deductible under the insured’s policy is a lower amount than the deductible under the insurance carried by the owner of the temporary substitute automobile, such an additional insuring agreement covers the difference in the deductibles.
• If the owner of the temporary substitute automobile does not carry physical damage coverage, and if the loss is covered by the insured’s policy, then there is coverage for the damage to the temporary substitute automobile subject to the provisions of the insured’s policy.
• Many credit cards now offer insurance on substitute or rental vehicles, so no additional coverage is required on the insured’s own policy.
• For example, if the insured carries a collision deductible of $100 and the owner of the temporary substitute automobile carries a collision deductible of $250, the maximum amount payable by the insured’s policy is $150.

Question 26

Which policy endorsements for automobile damage should adjusters examine in order to limit, or broaden, coverage under the standard policy provisions?

Answer 26

• A loss of use endorsement entitles the insured to be reimbursed for reasonable amounts incurred for transportation up to a certain limit, whether or not the insured is at fault for an accident. The coverage specifies a daily limit subject to an overall limit for rental of an automobile while repairs are done or for the cost of using taxis or public transportation.
• A limitation of amount endorsement limits the claim settlement for the value of the insured automobile to its actual cash value or the amount specified in this endorsement, whichever is less.
• A waiver of depreciation endorsement can be one of several types sold across the country. Some endorsements are offered only on newer automobiles. The coverage provides that no deduction will be made for depreciation of the vehicle in the event of a total loss within a stated period of time.
• A civil liability for damage to non-owned automobiles endorsement extends coverage to the designated insured and his or her spouse in situations when the insured is driving a vehicle other than the one insured under the policy.
• A blanket-basis fleet endorsement provides that all automobiles owned by the named insured during the term of the policy are insured without being identified specifically. This typically applies to larger commercial businesses.
• A ridesharing endorsement provides insurance coverage for drivers who use their own vehicles to transport paying passengers for ridesharing services such as Uber and Lyft.

Question 27

When the insured is suspected of having breached a policy condition and might be denied coverage, what action should the loss adjuster take in order to avoid estoppel?

Answer 27

• Issue a non-waiver agreement.
• Issue a reservation of rights letter.
• Alert the underwriting department of any misrepresentation and material change of risk.
• The insurer may be permitted to reduce the amount of insurance applicable or to charge additional premium to reflect the risk undertaken.

Question 28

Once the coverage has been assessed in the event of a fire, what actions can the loss adjuster take in order to minimize further damage?

Answer 28

• There may be some urgency to board up exposed areas.
• There may be a need to air and deodorize the premises.
• Washing walls should be attempted as soon as possible to determine what painting would be required.
• Protective barriers or fencing may be required to limit any trespassing or further damage.
• In the case of complex or large losses still under investigation, the property may require on-site security to protect the area.

Question 29

If a bolt of lightning strikes an insured house, the resulting damage is covered. How can the loss adjuster determine if the damage was caused by lightning and not an electrical failure?

Answer 29

• A direct strike can cause physical damage to property by vaporizing material.
• Lightning damage is sometimes evidenced by a hole in the roof or wall.
• Lightning damage can be tracked through the property.
• Lightning generally follows a defined path through electrical equipment.
• A loss adjuster may appoint a qualified expert to differentiate between lightning damage and other causes of electrical failure in appliances.

Question 30

Provide examples of occurrences that would be covered under the water escape peril.

Answer 30

• Sudden and accidental escape of water from a watermain.
• Rupture of a watermain, or some other plumbing system.
• Sudden and accidental escape of water or steam from within a plumbing, heating, sprinkler, or air conditioning system or domestic water container located inside the dwelling.
• Sudden and accidental escape of water from a domestic water container located outside the building (this kind of damage is not insured when the escape of water is caused by freezing).
• Water that enters the dwelling through an opening that has been created suddenly and accidentally by an insured peril other than water damage.

Question 31

Explain personal liability coverage.

Answer 31

• Personal liability coverage under homeowners policies is a form of insurance meant to protect individuals and their families against the liability imposed upon them by law arising out of their daily activities that result in bodily injury or property damage to others.
• They are also covered for liability they assume under a written agreement relating to their dwelling premises.
• Applies only to accidents or occurrences that take place during the policy period.
• The amount of insurance applies to each occurrence, regardless of how many insureds are covered or how many claims are made.
• It is liability insurance for an individual’s personal liability exposures such as premises, personal activities, some contracts, and certain incidental coverages.

Question 32

Define legal liability.

Answer 32

• Legal liability is imposed by law on individuals or corporations to pay for harm done to others.
• Such law may be the common law, statute law, or customs that over a period of time have taken on the same status as law.
• Legal liability may also be assumed under the terms of a contract.
• The policy states that the insurer will pay only compensatory damages for which the insured is legally liable.
• The amount of insurance stated in the policy is the maximum amount that is available to pay losses in respect of one accident or occurrence.
• Certain costs and expenses associated with defending an action will be paid in excess of the limit of insurance.

Question 33

Provide some examples of actions that are NOT covered under personal liability coverage.

Answer 33

• The personal actions of any named insured who does not live on the described premises
• The ownership, use, or operation of any motorized vehicle, trailer, or watercraft, except those for which coverage is shown in this form
• Damage to property the insured owns, uses, occupies, or leases
• Damage to property in the insured’s care, custody, or control
• Damage to personal property or fixtures as a result of work done on them by the insured or anyone on his or her behalf
• Bodily injury to the insured or to any person residing in his or her household other than a residence employee.