CALA Risk Management & Fraud Prevention in Claims Handling 5 — Questions and Answers
Question 1: A claimant involved in a minor fender-bender claims total disability for six months. Which investigative tool BEST challenges the duration of disability?
- Vehicle damage appraisal
- Independent Medical Examination (IME) (Correct answer)
- EUO regarding the accident
- NICB VINCheck
Correct answer: Independent Medical Examination (IME)
An Independent Medical Examination by an insurer-selected physician can objectively assess whether the claimed disability duration is medically justified.
Question 2: Under most state insurance fraud statutes, what is required for an insurer to report suspected fraud without civil liability to the claimant?
- A conviction in a prior case against the same claimant
- A good-faith belief that fraud may have occurred (Correct answer)
- Documented approval from a senior claims manager
- A completed SIU investigation confirming fraud
Correct answer: A good-faith belief that fraud may have occurred
Most state fraud immunity statutes protect insurers from civil liability when fraud is reported in good faith, even if the allegation is ultimately unproven.
Question 3: What does a 'coverage defense' mean in the context of a fraudulent auto claim?
- Asserting the claimant's negligence reduced damages
- Denying indemnity based on a policy exclusion or misrepresentation voiding coverage (Correct answer)
- Using comparative fault to offset the claim amount
- Invoking the appraisal clause to resolve the dispute
Correct answer: Denying indemnity based on a policy exclusion or misrepresentation voiding coverage
A coverage defense denies the claim based on policy provisions — such as fraud exclusions, material misrepresentation, or concealment — that void or limit coverage.
Question 4: An SIU investigator identifies that five separate claimants in recent accidents all share the same attorney, same chiropractor, and same repair shop. This pattern is MOST consistent with:
- Coincidental market clustering
- An organized fraud ring with coordinated referral relationships (Correct answer)
- A preferred provider network legitimately marketing services
- A single-event mass tort claim
Correct answer: An organized fraud ring with coordinated referral relationships
Shared attorney, medical provider, and repair shop across multiple claimants is a hallmark indicator of an organized insurance fraud ring.
Question 5: Which element of risk management involves setting adequate case reserves on claims with fraud indicators?
- Loss control
- Financial risk mitigation through accurate reserving (Correct answer)
- Transfer of risk through reinsurance
- Avoidance through underwriting exclusions
Correct answer: Financial risk mitigation through accurate reserving
Accurate case reserves on potentially fraudulent claims protect the insurer's financial position and ensure regulatory reserve adequacy requirements are met.
Question 6: A claimant refuses to submit to an Examination Under Oath (EUO) after the insurer makes a proper demand. What is the typical result?
- The insurer must pay the claim within 30 days by law
- The refusal constitutes a breach of the cooperation clause, which may void coverage (Correct answer)
- The insurer must seek a court order before proceeding
- The claimant's attorney may substitute a written statement
Correct answer: The refusal constitutes a breach of the cooperation clause, which may void coverage
Refusing a properly demanded EUO breaches the cooperation clause found in most auto policies, which can void coverage and justify denial.
Question 7: What is the significance of 'earned premium' when calculating an insurer's fraud loss ratio?
- Earned premium determines how much an insurer can recover through subrogation
- Fraud losses are expressed as a percentage of earned premium to measure exposure (Correct answer)
- Earned premium sets the maximum payout for any single fraudulent claim
- Earned premium is used to calculate the deductible offset in fraud cases
Correct answer: Fraud losses are expressed as a percentage of earned premium to measure exposure
The fraud loss ratio divides total fraud-related losses by earned premium, providing a standard metric for measuring the financial impact of fraud on the insurer's book of business.
CALA Risk Management & Fraud Prevention in Claims Handling 5
A claimant involved in a minor fender-bender claims total disability for six months.
Which investigative tool BEST challenges the duration of disability?