Claim reserves are a normal part of the insurance process. When you have a claim event the insurance companies quickly estimates a payout and code it as a reserve against the policyholder. For the insurance company it is a required practice so that their books reflect the expected claim amount that could be paid. If a claim is settled for a lower amount than what was estimated, the remaining reserve amount can stay on the books against the insured. If not managed, this reserve can cause higher insurance costs for business owners.
Most reserves will stay on the loss record longer than they should. This is mostly to protect the insurance company from under estimating loss payouts, especially ones that take a long time to resolve. What most people do not realize is that when it comes to pricing insurance, a loss reserve can increase premiums. It is looked at in the total cost of the claim, even though it may or may not be paid out in the future. That is why the risk management of loss reserves is important.
Have a systematic approach to monitoring claims and their payouts. This will help determine if a loss reserve can be dropped. Communication with the insurance carrier and claims adjusters can usually reduce or eliminate reserves as claims get settled. Do your home work and understand how the loss reserve was set in the first place and push back against the company if it seems excessive or if it is on the books longer than it should. Many times claims adjusters do not know all the changes and details of what is happening with a claim. A good risk manager will bring them up to date and will add credence to the request to lower or drop reserves.
Reserve tracking is usually overlooked and forgotten. When attended too, there is the possibility to save thousands of dollars in insurance costs. Make it part of your insurance and risk strategy going forward and reap the benefits.
Until next time be careful out there an know your risks.
Posted by; G. Kevin Nemith CIC CRM
knemith@hilbgroup.com
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