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Insurance · Negotiation and Settlement

What is a key principle an adjuster should follow when negotiating a claim settlement?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

Negotiate in good faith toward a fair settlement supported by the facts and the policy terms, treating the claimant honestly and avoiding both overpayment and unfair underpayment

  1. A Refuse to communicate with the claimant
  2. B Always pay the maximum to avoid conflict
  3. C Negotiate in good faith toward a fair settlement supported by the facts and the policy terms, treating the claimant honestly and avoiding both overpayment and unfair underpayment
  4. D Offer the lowest possible amount regardless of the facts

Why this is the answer

An adjuster should negotiate claim settlements in good faith, working toward an amount that is fair and supported by the investigation's facts and the policy's terms. This means treating claimants honestly and professionally, neither overpaying (which harms the insurer and the risk pool) nor unfairly underpaying or lowballing (which harms the claimant and can constitute bad faith). Good-faith negotiation includes clear communication, prompt handling, and a settlement justified by the loss and coverage. The adjuster balances the duty to the insurer with the obligation to treat claimants fairly. Understanding good-faith, fact-based negotiation is core content for the adjuster exam.
Source: NAIC Adjuster, Claim Negotiation

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About this topic: Negotiation and Settlement

Negotiation and settlement questions cover valuing a claim, releases, settlement authority, dealing with represented claimants and the ethical limits on negotiating with an unrepresented person. This is one of 6 Insurance Adjuster questions on negotiation and settlement, each with a full explanation on a single study page.

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A third-party claimant (injured party, not the insured) is represented by an attorney and demands a settlement of $150,000 for a soft-tissue auto injury. The adjuster's evaluation indicates the case is worth $40,000-$55,000 based on medical specials, lost wages, and comparable verdicts. How should the adjuster proceed?

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