What Does Loss Adjustment Expenses (LAE) Mean?
Loss adjustment expenses refer to the expenses incurred during the investigation and handling of insurance claims. These investigations are conducted as part of the insurance company's due diligence effort in establishing the veracity and accuracy of a claim.
Insuranceopedia Explains Loss Adjustment Expenses (LAE)
When a policyholder submits a claim, the insurer does not immediately pay out benefits. They first conduct an investigation to verify the claim. The expenses usually include fees charged by adjusters, investigators, attorneys, experts, arbitrators, mediators and other charges incidental to the claim. In an auto insurance policy, the deductible usually covers these expenses.
Some expenses are set aside for certain claims and are known as allocated loss adjustment expenses (ALAE), while some, such as funds for personnel salary and share in overhead expenses, are not allocated to a specific claim and known as unallocated loss adjustment expenses (ULAE).