Claims Reserve
What Does Claims Reserve Mean?
A claims reserve is a financial reserve that an insurance company intentionally sets aside to cover unsettled claims in the future. This reserve is necessary because processing claims takes time, and insurers need to ensure that claims are both covered and legitimate. Insurers use this fund to pay benefits to policyholders who file valid claims.
Insuranceopedia Explains Claims Reserve
Claims reserves represent liabilities for an insurance company because they are intended to cover incurred but unsettled claims. In other words, they signify potential financial obligations to policyholders. This money is derived from premiums; however, determining the appropriate amount to set aside for claims can be challenging. Insurers typically rely on historical data regarding losses to statistically calculate a suitable and reasonable reserve amount.
