chapter 9 Flashcards
What is a claims reserve?
A claims reserve is the estimated amount of money set aside by an insurer to pay for a reported claim, including expected future payments.
Why is accurate claims reserving important for insurers?
Accurate reserving ensures that the insurer has enough funds to cover future claim payments, maintains financial stability, and complies with regulatory requirements.
What factors influence the initial reserve estimate for a claim?
Factors include severity of the loss, policy limits, type of claim, potential for legal action, and past claims history.
How often should claims reserves be reviewed and updated?
Reserves should be reviewed regularly as new information becomes available, such as updated medical reports, repair estimates, or legal developments.
What is IBNR?
IBNR stands for Incurred But Not Reported. It refers to claims that have occurred but have not yet been reported to the insurer.
What is the difference between case reserves and IBNR reserves?
Case reserves are set for specific known claims, while IBNR reserves cover potential claims that have not yet been reported.
What is a loss development triangle?
A loss development triangle is a method used to track claims development over time, helping to predict future liabilities and adjust reserves.
Why is management information (MI) important in claims reserving?
MI helps claims managers monitor reserve adequacy, track claims trends, and support strategic decision-making in claims handling.
What is run-off analysis?
Run-off analysis involves tracking the settlement of claims over time to assess the accuracy of past reserving and make improvements.
How does reinsurance affect claims reserving?
Reinsurance can offset some of the risk and reduce the reserves required by the primary insurer, particularly for large or catastrophic claims.
What is adverse development in claims reserving?
Adverse development occurs when the actual claim costs are higher than initially estimated, requiring an increase in reserves.
What is reserve strengthening?
Reserve strengthening is when an insurer increases the reserve amount to account for higher-than-expected claim costs.
What is reserve redundancy?
Reserve redundancy occurs when set reserves exceed the actual amount needed to settle claims, indicating over-reserving.
What is the impact of under-reserving on an insurer?
Under-reserving can lead to financial shortfalls, regulatory penalties, and reduced ability to pay claims, threatening the insurer’s solvency.
What is loss ratio analysis?
Loss ratio analysis measures claims costs relative to premiums earned, helping assess the profitability of the insurer’s underwriting practices.
