Claims Handling, Investigation, and Fraud Awareness
Claims handling covers the life cycle of a claim: notice, investigation, coverage determination, evaluation, negotiation, and settlement or denial. The exam tests fair claim practices, damage evaluation, subrogation, and the red flags that should send a file to a special investigation unit.
Good-faith duties
- Acknowledge and act promptly, communicate in writing, and explain the basis for any denial.
- Conduct a reasonable investigation before denying or delaying; a reservation-of-rights letter preserves the insurer's position while the inquiry continues.
- Unfair claim settlement practices acts prohibit misrepresenting policy provisions, failing to investigate, and offering substantially less than a reasonable person would expect.
Investigation and evaluation
- Establish coverage: named insured, occurrence versus claims-made timing, limits, exclusions, and compliance with notice and cooperation conditions.
- Establish liability: negligence elements, comparative or contributory negligence rules, and statutory bars.
- Establish damages: special damages (medical bills, lost wages) and general damages (pain and suffering); subrogation and workers' compensation liens reduce the net payment.
Fraud red flags
- Late reporting, no police report, treatment gaps, prior similar claims, multiple claimants from one accident, staged accidents, treatment unrelated to the mechanism of injury, and unusual pressure to settle quickly.
Worked example
Two claimants are injured in one accident caused by an insured with 100/300 limits. Claimant 1 has $130,000 in damages, so the per-person cap limits payment to $100,000. Claimant 2 has $60,000 in damages and is paid in full. Total bodily injury payment is $160,000, well inside the $300,000 per-occurrence limit. The adjuster documents the reservation, the liability analysis, and the subrogation potential before issuing payment.
Traps that cost marks
- Denying a claim before completing the investigation.
- Missing a subrogation opportunity or letting the statute of limitations run.
- Applying contributory negligence rules uniformly across states that use pure comparative or modified 50/51% bars.
- Treating a reservation-of-rights letter as a denial.