At Claimstream, we believe that the development of reserves over time is the single most important factor in determining the effectiveness of a claim management program. Reserves communicate the basic status of a program to its most important constituents, including Risk Managers, CFOs, CEOs, excess insurers and in some cases even the company’s stockholders.
We also view the rate at which reserves are developed over time to be vital to evaluating the entire claim process. Reserve development tells us how quickly the claims people are recognizing the exposures and dealing with them. Prompt investigations and accurate analysis prevents unpleasant surprises years after a claim has occurred, and also greatly reduces transactional costs.
Some of the issues we consider when analyzing reserves:
- What reserving philosophy is in place and is it being uniformly utilized?
- Are the evaluations of damages or liability credible or is the claims handler being optimistic?
- Are the issues needed to address reserves being actively pursued?
- How promptly are changes in the understanding of the exposure resulting in changes in the reserves?
- How do your reserve development numbers compare to others in your industry?
- Are all reserves being properly coded to the correct coverage or business unit? Errors here may threaten insurance recoveries or negatively impact internal cost allocations.