What does it mean when the insurance company sets a "reserve" on my claim?

The reserve represents money that is set aside for the eventual payment of a claim. From the company's standpoint, a claim is incurred when it happens, regardless of when in the future it is paid. Some companies include estimated claim expenses in the reserve amount while others establish a separate reserve for the claim and a separate reserve for anticipated expenses, such as legal fees, charges for police reports, records, etc.
Still others "bulk" reserves for expense amounts.

Insurance is an "intangible" product. As a policyholder, you do not receive anything material or tangible for your premium dollar unless and until a claim is paid. The payment of a claim is what consummates the insurance contract. So, it is important that when claims become due, money is available to meet those obligations. In Pennsylvania, like all States, Insurance companies are regulated for solvency so that they will be able to pay claims in the future. With bodily injury liability claims, years may pass before a claim is paid. This might be due to the fact that time is needed for the injury to heal or because the claim is in litigation.

Claim reserves are necessary to ascertain the company's future obligations and are required by insurance regulatory law.

Claim reserves are established in two ways:
statistically or actuarially by monitoring past lost experience and projecting future losses.

Types of Reserves include Average or Formula reserves. They are set statistically by the actuarial department based on past loss experience and adjusted periodically. This reserving method usually is applied to high-volume type claims such as auto collision, comprehensive, property damage, and medical payments where payments generally are minimal and claims settle sooner. Since these reserves are set, by the statistical department, they are not of primary concern to claim people.

Case reserve considerations can include:
What would be a settlement range?
What would be a likely jury award?
Claimant's impression on a jury
Attorney skills (plaintiff and defendant)
Local verdict climate
Coverage or liability factors

The insurance company's claim reserves on injury cases include:
Nature and extent of injury
Medical expenses
Lost income, past and projected
Diagnosis
Prognosis
Extent of permanent disfigurement
Age, sex, occupation, dependents, etc.

The insurance company will not disclose to you what they have set their reserve at. They are also at an advantage over you because this is their business and they keep careful track of what they've paid on similar claims as well as what their potential 'exposure' for payment could be. For you, this may be the first time you have ever had a claim.

If you have any questions, or would like more information, feel free to contact us.

Mayerson Schreiber McDevitt, P.C.
610-948-4800
http://www.mayerson.com/