What Is Unfair Claims Practice?
Unfair claims practice is theimproper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims practices, an insurer tries to reduce its costs. However, this is illegal in many jurisdictions.
Key Takeaways
- An unfair claims practice is what happens when an insurer tries to delay, avoid, or reduce the size of a claim that is due to be paid out to an insured party.
- Insurers that do this are trying to reduce costs or delay payments to insured parties, and are often engaging in practices that are illegal.
- Many states have passed unfair claims practices laws to protect insured parties from bad behavior on the part of insurers in the claims settlement process.
- Unfair Claims Settlement Practices Acts (UCSPA) are enforced by individual states, rather than the federal government, and vary state-by-state.
Understanding Unfair Claims Practice
The National Association of Insurance Commissioners (NAIC) has created a model of unfair claims practicelegislation that mandatesclaims be handled fairly and that there beclear communication between the insurer and the insured. States, not the federal government, regulate insurance; many jurisdictions have implemented unfair claims practices laws modeled after the NAIC's model act.
Also, most states have enacted a version of thismodel law. Called the Unfair Claims Settlement Practices Act, it protects insurance buyers from unjust behavior by insurers in the claims settlement process. Specifics of thelaw vary from state to state. Unfair Claims Settlement Practices Acts (UCSPA) are not federal law; instead, theyare enforced by individual state insurance departments.
Example of Unfair Claims Practice
Consider a small business owner that insures hiscompany's building and business personal property under acommercial property policy. Unfortunately, a fire broke out in thebuilding, causing $100,000 in property damage. The insurance company delays payment, rendering the business ownerunable to repair any of the damage.The insurance company continuesusing delay tactics to avoid making a payment. For example, theclaims representative keeps"forgetting" to send the claim forms. Also,the adjustersays he needs another proof of loss, but the small business owner has alreadysubmittedproof of loss twice. These are the types of situations that unfair claims practice laws are designed to prevent.
Other Examples ofUnfair Claims Practice
- Misrepresenting relevant facts or policy provisions. For instance, your commercial property policy states thatBuilding Ordinancecoverage is included, but yourinsurerinsists the coverage is excluded.
- Making a significant alteration in an application without your consent and then settling a claim based on the alteration. For instance, in your application, you requested a $50,000 limit forUtility Interruptioncoverage, but your insurer reduced the limit to $10,000 without telling you. The insurer then refuses to pay more than $10,000 for a loss.
- Settling claims for less than what you would reasonably expect based on a written advertisem*nt you received. For instance, an ad announcesa $50,000 limit for damage caused by flooding. However, the ad doesn't mention anywhere that this coverage is provided only if the insuredpays an additional premium beyond the premium stated in the ad.
FAQs
Some instances of unfair claims settlement practice may involve issues with timeliness on the part of insurers. Examples of specific timeliness issues could involve: Failure to provide a timely explanation for the denial of coverage or a low settlement offer.
What is an example of an unfair claims practice in Quizlet? ›
Failing to acknowledge coverage within a reasonable time after receiving proof of loss is an unfair claims practice.
What might be considered evidence of an unfair claims settlement practice? ›
Acts deemed as unfair generally fit into mistreatment or alteration, timeliness issues, unreasonable requirements, and lack of due diligence. In fact, the National Association of Insurance Commissioners (NAIC) has a model for unfair claims practice legislation that requires claims to be fairly handled.
How to value items for an insurance claim? ›
When it comes to the value of specific items, condition is more important than age. An older item that's in excellent condition should be depreciated less than a newer item that's frequently used or one that's regularly exposed to water, sun, wind, etc.
What are the examples of fair or unfair practice? ›
Unfair practices refer to any actions or decisions taken by an organization that are unethical, discriminatory, or illegal. These practices can take many forms, such as workplace discrimination, unethical business practices, conflict of interest, abuse of power, harassment, retaliation, and more.
Which of the following would be considered an unfair claims? ›
Unfair claims settlement practices include denying a claim without a reasonable investigation, refusing to explain a claim refusal, not acting promptly on claim-related communications, and offering a less than reasonable settlement amount.
Which of the following is an example of an unfair trade practice? ›
Some examples of unfair trade methods are: the false representation of a good or service; false free gift or prize offers; non-compliance with manufacturing standards; false advertising; or deceptive pricing.
Which of the following is a violation of unfair claims practices laws? ›
A violation of the Unfair Claims Settlement Practices Act could involve failing to acknowledge a claim with promptness or not acting reasonably in settling a claim. For instance, if an insurance company intentionally delays an investigation or denies a claim without a reasonable basis, it may be violating the act.
What is an example of rebating? ›
An example of rebating is when the prospective insurance buyer receives a refund of all or part of the commission for the insurance sale. Rebates can be made in the form of cash, gifts, services, payment of premiums, employment, or almost any other thing of value.
Which of the following is not an unfair claims settlement practice if committed by an insurance company in Florida? ›
Final answer: Option 4 (Offering a fair settlement to a claimant) is NOT considered an unfair claims settlement practice in Florida. The rest of the options provided describe actions that would be unfair and inappropriate in the settlement of insurance claims in the state.
Final answer: Discriminating in benefits based on the insured's habits and lifestyle is not unfair discrimination as it reflects the insured's choices that affect health risks. Charging different premiums based on immutable characteristics, like ethnicity, is considered discriminatory.
What is twisting in insurance? ›
Twisting is also called external replacement and is the practice of inducing a person to drop existing insurance to buy similar coverage with another producer or company. Replacing existing life insurance with a new life insurance policy based upon incomplete or incorrect representation is called twisting.
What not to say to a home insurance adjuster? ›
Admitting Fault, Even Partial Fault.
Avoid any language that could be construed as apologetic or blameful.
How do I calculate my belongings value? ›
Research current market values: Determine the current market value of your personal property by researching various sources. Check online marketplaces, classified ads and price guides for similar items. Websites, like eBay or Craigslist, can provide insights into what similar items are selling for.
How does a claims adjuster calculate the actual cash value? ›
What are the methods to determine ACV? To determine an item's ACV, an insurance adjuster will start from the cost of replacing your damaged or stolen property and lower the value based on depreciation factors, such as age and wear and tear.
What are the four major categories of unfair trade practices? ›
Some examples of unfair trade methods are: the false representation of a good or service; false free gift or prize offers; non-compliance with manufacturing standards; false advertising; or deceptive pricing.
What does unfair practices include? ›
Acts or practices that may be deceptive include: making misleading cost or price claims; offering to provide a product or service that is not in fact available; using bait-and-switch techniques; omitting material limitations or conditions from an offer; or failing to provide the promised services.
What does the Unfair Claims Practice Act not cover? ›
The purpose of this Act is to set forth standards for the investigation and disposition of claims arising under policies or certificates of insurance issued to residents of [insert state]. It is not intended to cover claims involving workers' compensation, fidelity, suretyship or boiler and machinery insurance.
