CNC Insurance Delaware Business Insurance Review - Claims Reserve Fairness

I guess when it comes to claims reserves and their fairness, it depends on your prospective? If your the insurance company, setting a higher reserve may be indeed justified if a business's claims history indicates higher risk. On the other hand, should the business have to pay higher rates if the insurance company sets a high reserve? This back and forth goes on every day in the commercial insurance world. In theory, the reserve amount should be enough to cover claims. The insurance company gets the benefit of setting aside earnings and investing them, as claims are rarely paid immediately. In actuality my experience is that most reserves are over exaggerated. Insurance companies every year continue to release reserves back into earnings to bump up their income statements. From the business owners perspective, this just does not make sense. They are charged higher rates on the anticipation of the reserves being paid out, and the insurance companies drop the reserves and put them back into earnings. Unfortunately the insurance company does not retroactively credit premium back to the business owner because they "actuarily guessed" wrong on the reserve. Thus, the practice of reserving claims continues to add to the complexities of the business and brings up the fairness question every time. Until next time be careful out there and know your risks.

G. Kevin Nemith
President CNC Insurance Associates, Small Business Insurance Center
Proudly serving De, Md, VA, PA, & NJ
www.cncinsurance.com
www.bizinsurancetv.org

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