Overview of Insurance Terminology

Question 1

Paid Loss

Answer 1

Represents dollars that have already went out the door

Question 2

Case Reserve/Case Outstanding

Answer 2

Claim handler’s best estimate on the losses the insurer will pay in the future on a claim

Question 3

Allocated Loss Adjustment Expense (ALAE)

Answer 3

Include legal defense costs and cost containment

Question 4

Unallocated Loss Adjustment Expense (ULAE)

Answer 4

Includes things like claim adjuster salaries

Question 5

Salvage

Answer 5

When an insurer pays an insured for a claim considered to be a total loss, the insurer acquires rights to the damaged property. Any amount the insurer can collect from the sale of such damaged property.

Question 6

Subrogation

Answer 6

Refers to an insurer’s right to recover the amount of the claim payment to a covered insured from a third party responsible for the injury or damage

Question 7

Deductible

Answer 7

The amount below which the insured will pay for the claim, but the insurer will handle

Question 8

Self-Insured Retention

Answer 8

The amount below which the insured will handle and pay for the claim

Question 9

Per Occurrence Limit

Answer 9

The max amount the insurer is liable for per event

Question 10

Aggregate Limit

Answer 10

The max amount the insurer will pay for the total of all claims that occurred during the policy period

Question 11

Frequency

Answer 11

Measure of the rate at which claims occur and is normally calculated as # of claims/# of exposures.

Question 12

Severity

Answer 12

Measure of the average cost of claims which is losses/# of claims

Question 13

Average Case Outstanding

Answer 13

Common way to measure case reserve adequacy. Decline in this metric may indicate case reserve weakening (Total Case Outstanding/Number of Open Claims)

Question 14

Settlement Rate

Answer 14

To measure how effective we are at closing claims. Longer the claims linger the worse they typically get (Number of closed claims/Number of reported claims)