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Insurance · Bad Faith and Ethics

What is the purpose of state Unfair Claims Settlement Practices Acts?

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

To prohibit specified unfair practices in handling claims — such as misrepresenting policy terms, failing to act promptly, or not attempting good-faith settlement — and to protect consumers

  1. A To eliminate the need for adjusters
  2. B To prohibit specified unfair practices in handling claims — such as misrepresenting policy terms, failing to act promptly, or not attempting good-faith settlement — and to protect consumers
  3. C To set premium rates
  4. D To help insurers deny claims

Why this is the answer

State Unfair Claims Settlement Practices Acts (often based on an NAIC model) define and prohibit a list of unfair practices in the handling of insurance claims, in order to protect policyholders and claimants. Prohibited practices commonly include misrepresenting pertinent facts or policy provisions, failing to acknowledge and act promptly on communications, failing to adopt reasonable standards for prompt investigation, not attempting good-faith settlement of clear claims, and compelling insureds to litigate by offering far less than is owed. Violations can lead to regulatory penalties. Adjusters must know and follow these standards. Understanding the purpose of these acts is essential bad-faith/regulatory content for the adjuster exam.
Source: NAIC Adjuster, Unfair Claims Practices

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About this topic: Bad Faith and Ethics

Bad faith and ethics questions cover the insurer's duty of good faith, the conduct that unfair-claims-practice laws prohibit, and the consequences — extra-contractual damages — when a claim is handled unfairly. This is one of 7 Insurance Adjuster questions on bad faith and ethics, each with a full explanation on a single study page.

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