What does arbitration refer to in insurance?

Arbitration in the context of insurance refers specifically to resolving disputes over fault in a loss. This process typically comes into play when there is disagreement between parties, such as an insurer and the insured, regarding the details of a claim—specifically who is at fault or how much compensation is appropriate.

During arbitration, an impartial third party hears the arguments from both sides and makes a binding decision. This method is particularly valuable because it provides an efficient way to settle disputes without going through a lengthy court trial. In many insurance policies, arbitration clauses are included as a way to streamline the claims dispute process, offering a mechanism that can lead to resolution without the additional costs associated with litigation.

The other options refer to different aspects of insurance and claims management: deciding the validity of a claim relates to the initial assessment when a claim is filed, determining market value pertains to valuing assets rather than resolving disputes, and assessing damages involves calculating the amount of loss or damage incurred rather than settling a disagreement over fault.