What is arbitration in resolving insurance disputes?

Arbitration is a widely recognized method of resolving disputes outside of the traditional court system. In the context of insurance disputes, arbitration provides a structured process where a neutral third party, known as an arbitrator, listens to both sides and makes a binding decision. This approach allows parties to resolve their conflicts in a more private and often quicker manner than through formal litigation.

Choosing arbitration can be beneficial for both insurers and policyholders, as it typically reduces costs, avoids the lengthy court processes, and enables parties to select arbitrators with expertise relevant to their specific issues. This method is governed by agreements made before disputes arise, often outlined within the insurance policy itself.

In comparison to the other options, the characteristics of arbitration distinctly differentiate it from governmental hearings, which involve formal legal proceedings, and informal meetings that lack the binding decision-making characteristic of arbitration. While the arbitration process can indeed vary by state law in terms of regulations and procedures, the essence of arbitration as a method external to the courts is fundamental and more accurately captured by the definition provided.