Regulatory Compliance & Risk Management Flashcards

When an insurer denies a claim in whole or in part, most state unfair claims practices laws require it to:

Answer: Provide a reasonable explanation of the basis for denial, citing relevant policy provisions

Insurers must promptly give a reasonable written explanation of the denial in relation to the policy facts and applicable law.

A third-party claimant offers to settle within policy limits, but the insurer unreasonably refuses and a judgment above limits follows. The insured's strongest claim against the insurer is:

Answer: Breach of the duty to settle (third-party bad faith)

Unreasonably refusing a within-limits settlement can expose the insurer to liability for the excess judgment under third-party bad faith.

Under the Fair Credit Reporting Act, if an insurer uses a consumer report to take adverse action, it must:

Answer: Provide an adverse action notice identifying the reporting agency

The FCRA requires adverse action notices that name the consumer reporting agency and explain the consumer's rights.

Which measure would a risk manager most likely use to judge whether a claims department's reserving practices are adequate?

Answer: Loss reserve development over time

Comparing initial reserves with how losses later develop shows whether reserves were set accurately.

A claims organization outsources file handling to a third-party administrator. Regarding regulatory compliance, the insurer:

Answer: Remains responsible for ensuring claims are handled in compliance with law

Insurers generally remain accountable to regulators for claim handling and must oversee their vendors and TPAs.

Which of the following is a noninsurance risk transfer technique?

Answer: Using a hold-harmless agreement in a contract

Hold-harmless and indemnity clauses shift financial responsibility to another party by contract, not by insurance.

A state requires insurers to pay undisputed claim amounts within a set period after reaching agreement and imposes interest for late payment. The main purpose of such a prompt-pay statute is to:

Answer: Protect claimants from unreasonable payment delays

Prompt-pay laws discourage delay by imposing deadlines and penalties such as interest on late payments.