Claims Handling, Investigation and Loss Valuation Practices
The claim workflow
This domain tests the sequence: notice, acknowledgment, investigation, documentation, coverage determination, valuation, and payment or denial. Know the insured's duties after loss, the proof-of-loss requirement, examination under oath, recorded statements, and the insurer's reservation-of-rights letter. Investigation includes scene inspection, photographs, witness statements, origin-and-cause analysis, and obtaining the policy and endorsements.
Valuation methods
Replacement cost, actual cash value, functional obsolescence, betterment, and salvage all affect the number. Contents claims require an inventory with age, quantity, and cost. Business income uses lost net income plus continuing expenses during the period of restoration, less noncontinuing expenses.
Maryland overlay
The Maryland Insurance Article, Title 27, treats unfair claim settlement practices as prohibited conduct, including misrepresentation of policy provisions and failure to act promptly on claims. The MIA accepts complaints and can investigate and fine insurers, but the adjuster's job is still to build a documented, policy-based demand.
Worked example
A burst pipe damages flooring and cabinetry. The insured's inventory lists a 12-year-old sofa with a $3,000 replacement cost and a 10-year life. ACV = $3,000 − (12/10 × $3,000) is not possible; the sofa is fully depreciated, so ACV is salvage value only. If the policy pays replacement cost, the insured must replace it and submit a receipt to recover the withheld depreciation.
Traps that cost marks
- Promising replacement cost before the insured repairs or replaces.
- Mixing covered water damage with excluded long-term seepage.
- Omitting overhead and profit on a complex repair.
- Failing to document the insurer's delay for a later complaint.