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Difficulty: MediumUnfair Claims Settlement Practices

During a routine compliance audit of a property and casualty insurer, state regulators review several claim files to ensure adherence to standard claims handling procedures. Under the NAIC Unfair Claims Settlement Practices model act, which of the following adjuster actions would be cited as statutory violations? (Select all that apply)

  1. Requiring an insured to submit a preliminary claim report and then later demanding a formal proof of loss containing the exact same informationAnswer
  2. Attempting to settle a property damage claim for substantially less than the amount a reasonable person would expect based on the insurer's advertising materialAnswer
  3. C
    Sending a written notification to the claimant during the initial review period stating that an additional 30 days is needed to finalize the coverage determination
  4. D
    Delaying a final settlement offer because the adjuster is waiting for an official police report and medical records necessary to complete a reasonable investigation

Answer

The actions considered statutory violations are requiring duplicative claim reports containing the same information, and attempting to settle for substantially less than advertised.
Under the NAIC model act, it is an unfair claims settlement practice to require an insured to submit a preliminary claim report and subsequently require a formal proof of loss form that contains substantially the same information. It is also an explicit violation to attempt to settle a claim for an amount substantially less than a reasonable person would believe they were entitled to based on written or printed advertising material.

Step-by-Step Solution

1
Analyze each action against the prohibitions outlined in the NAIC Unfair Claims Settlement Practices model act.
Identified which actions represent illegal delays or deceptions versus compliant investigation procedures.
To distinguish between statutory violations and standard, legal claims handling procedures.
2
Evaluate the requirement of duplicate documentation.
Determined that demanding a formal proof of loss containing the exact same information as a previously submitted preliminary report is an explicit statutory violation meant to delay claims.
Insurers cannot force insureds to complete redundant paperwork to stall the settlement process.
3
Evaluate the settlement offer amount compared to advertising.
Determined that offering substantially less than what a reasonable person would expect based on the insurer's marketing material is a deceptive violation.
Advertising must align with actual claims practices to prevent consumer deception.
4
Evaluate the delayed actions (written notice of delay and waiting for police/medical reports).
Determined these are compliant actions, as insurers are allowed to extend timelines with proper written notice and must wait for critical evidence to complete a reasonable investigation.
Statutory timelines allow for extensions when properly communicated, and a thorough investigation is legally required before a claim is paid or denied.

Key Concept

Unfair Claims Settlement Practices
Estimated Time:1m 30s
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Unfair Claims Settlement Practices

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