Loss Adjustment Expenses

What Does Loss Adjustment Expenses Mean?

Loss adjustment expenses refer to the costs incurred during the investigation and handling of insurance claims. These investigations are part of the insurance company’s due diligence in establishing the validity and accuracy of a claim.

Insuranceopedia Explains Loss Adjustment Expenses

When a policyholder submits a claim, the insurer does not immediately pay out benefits; instead, they first investigate to verify the claim. How smoothly that process goes depends partly on the policyholder; the steps you take after a car accident, like photographing damage and collecting contact details, leave adjusters with less to verify on their own. The expenses incurred during this process typically include fees charged by adjusters, investigators, attorneys, experts, arbitrators, mediators, and other charges related to the claim. In an auto insurance policy, the deductible usually covers these expenses. Drivers who raise their auto insurance deductible to lower premiums end up absorbing a larger share of these costs at claim time.

Some expenses are set aside for specific claims and are known as allocated loss adjustment expenses (ALAE), while others, such as funds for personnel salaries and a share of overhead costs, are not allocated to a specific claim and are referred to as unallocated loss adjustment expenses (ULAE).