Casualty Actuarial Society (CAS) Practice Exam

What is the primary distinction between a first-party claim and a third-party claim?

1. First-party claims are more common

2. First-party claims involve the insurer directly

3. Third-party claims result from indirect liability

4. Third-party claims are filed by the insurance company

The correct answer is: Third-party claims result from indirect liability

The primary distinction between a first-party claim and a third-party claim lies in the relationship between the claimant and the insurer. First-party claims involve the policyholder seeking compensation directly from their own insurance company for losses they have incurred. In contrast, third-party claims arise when the claimant, who is not the insured, seeks compensation from the insured’s insurance company for damages or losses caused by the insured’s actions. The assertion that third-party claims result from indirect liability is consistent with how these claims function. In a third-party scenario, the insured may be liable for damages to another party, and that third party can file a claim against the insured's insurance policy to recover their losses. This indirect relationship is key to understanding the dynamics of liability insurance, where the insurer steps in to cover costs resulting from actions or negligence of the insured affecting others. In summary, the distinction framed in the context of liability and the relationship between the claimant and the party responsible for the damage elucidates the nature of first-party versus third-party claims within the insurance sector.