A Guide to Increasing Insurance Reserves in Personal Injury Claims
Take Action to Influence the Claim Reserve Set by the Insurer in Your Auto Accident, Workers Comp, or Homeowners Claim
The insurance company tries to set your claim’s value immediately upon receiving notice of the bodily injury, death, or property loss.
This number – the insurance claim reserve – controls the settlement offers you receive, no matter your insurance claim type. Indeed, claim reserves affect payments in workers compensation, auto accident, product liability, premises liability, and property damage cases.
Fortunately, you can take steps to help the insurer set a claim reserve amount that reflects the actual value of your case.
This article explains how insurers set reserves and what information you should provide the claims adjuster (and when) to influence the insurer’s cost estimate for the claim so that a fair settlement is possible. Indeed, the adjuster, claims supervisor, and insurance defense attorney may rely on you to set the proper reserve. And you can take advantage of this.
Use these tips to affect the claim reserve in every insurance claim, whether first-party or third-party liability insurance.
Keep reading to learn more about how insurers handle claims and determine settlement offers.
Then call our law firm if you have questions about your claim: 804-251-1620 or 757-810-5614. Let’s start on the path to a complete physical, mental, and financial recovery.
What are Claim Reserves?
When an insurance company gets notice of a claim, it must set aside funds to cover the potential cost to settle that claim.
The specific amount of money the insurer sets aside to satisfy the potential loss exposure of a given claim is called the claim reserve. vir
The insurer cannot use this money held in reserve for claims for investments, marketing, or other business functions.
An insurance company, therefore, has an incentive to keep reserves low.
How Important Is It for the Insurer to Set Accurate Claim Reserves?
Setting accurate reserves for all reported claims is critical to maintaining an insurance company’s financial stability and avoiding inquiries from the state insurance commissioner.
An insurance company’s failure to reserve enough money can bankrupt the insurer if the income from premiums cannot cover current claim losses.
This risk is why federal and state laws (including regulations passed by state insurance commissioners) require insurers to maintain adequate claim reserves.
How are Claim Reserves Set?
The insurer’s claims department is responsible for setting reserves.
Usually the insurance adjuster (or their supervisor) sets the claim reserve within hours of receiving notice of the claim using one of the following reserving methods:
- Individual case method
- Roundtable method: Multiple people in the claims department discuss the case and determine the reserve amount.
- Average value method: The claim reserve equals the average value of similar cases resolved by the insurer.
- Formula method: The insurer may have a pre-set formula (or computer program) to calculate the reserve amount for a specific claim type.
- Expert system method: The insurance representative enters data for the claim into a computer program that estimates the incurred loss.
- Loss ratio method: The insurer sets aggregate reserves for all claims within a class of losses.
When the insurer uses the individual case method to set reserves in a workers comp or bodily injury claim, the adjuster estimates the claim expenses using statistical data compiled by the company’s actuarial department, personal experience with other claims, and by considering the lines of coverage and factors below:
- Alternative Dispute Resolution (ADR) Fees: The court may order the parties to participate in a mediation settlement conference. Or the parties may choose to do so voluntarily. The insurer may need to reserve funds for this procedure.
- Applicable Negligence Doctrine: A finding that you contributed to the accident and injuries will reduce your award in many states (comparative negligence) and bar you from recovering damages in others (contributory negligence, which Virginia follows). The claims representative, therefore, may adjust the loss reserve depending on your state’s rules and whether you partly caused the crash.
- Claimant’s Demographic Profile: The adjuster knows that age, gender, occupation, education, marital status, military veteran status, and life expectancy affect Workers Compensation Awards and judge or jury verdicts.
- Damage Caps: Some states cap specific types of damages. For example, Virginia limits the amount you can recover in a medical malpractice claim or as punitive damages.
- Degree of Insured’s Conduct: The claims rep will set higher reserves if the insured’s drunkenness or gross negligence caused injuries.
- Future Medical Costs: The insurer will estimate the future medical expenses for the accident victim or injured employee. These services include hospitalizations, physician visits, diagnostic testing (x-rays, CT scans, MRIs, etc.), physical therapy, and transportation to and from medical appointments.
- Inflation: Some negligence and workers compensation claims last for years. The cost of healthcare or the payments owed may increase due to inflation and cost-of-living adjustments (COLAs). The insurance representative, therefore, should set the reserve based on the future value of the claim, not its present value or a potential settlement.
- Jurisdiction: Some localities are known to have claimant-friendly courts. If you can file suit in one of these places, the insurer may set a higher claim reserve.
- Legal Costs: Under most policies covering liability for bodily injury and death, the insurance company must pay the insured’s attorney fees and litigation expenses. These amounts add up. Indeed, defense costs, pretrial discovery, medical records, court fees, and expert witness charges may equal 50% to 75% of the total amount spent on the claim, meaning it costs the insurer more to defend the case than settle it. High legal costs explain why many insurers use staff attorneys and captured law firms to defend claims or audit legal bills from panel counsel.
- Legal Representation: The insurer may set higher reserves if the claimant has retained a lawyer. In addition, the attorney’s reputation may influence the reserve amount.
- Likelihood of Success: The insurance company will estimate the probability that you have a case that will result in judgment.
- Medical Payments Coverage: The insurer may have to pay for a specific amount of medical treatment under insurance called Medical Payments Coverage (Med Pay).
- Physical Pain and Suffering: You may recover compensation for physical pain and suffering in tort claims based on negligence (workers comp doesn’t pay these damages). The insurer, therefore, may reserve an amount for this category.
- Policy Limits: The insurance company does not have to pay more than the liability coverage limits, no matter the damage. Read this article to learn how to get the insurer to disclose policy limits.
- Property Damage: In an automobile accident where the insured is at fault, the insurer may set reserves for physical damage to the insured’s and the claimant’s vehicles. This number will change depending on the vehicle’s year, make, and model and the receipt of repair estimates.
- Subrogation: The insurer may have subrogation rights that allow it to recover part of the payments under the claim. For example, a car accident on the job may result in a workers comp claim against your employer and a third-party lawsuit against the driver causing the crash. In this situation, the workers compensation insurer has a lien against the proceeds of the third-party claim.
- Type of Injury: The reserve amount may vary depending on whether you suffer a psychological versus physical injury or a soft tissue injury versus a fracture, traumatic brain injury/concussion, or spinal cord injury.
- Wage Loss: This category includes the indemnity benefits the insurer may pay based on the claimant’s disability from work. The more severe the injury, the greater the claim reserve for this item.
Does the Insurance Company Have to Set a Reserve Even if It Questions Liability or Whether the Policy Covers the Bodily Injury or Death?
Yes, the insurer should set a reserve even though it may deny coverage for the loss.
For example, the insurance carrier may incur investigation and litigation expenses (attorney fees, expert witness review, etc.) even if a judge or jury denies the claim at trial. The reserves should account for these potential costs.
Can a Claim Reserve Change Over Time?
Yes.
There will be a delay between the event giving rise to the claim (auto accident, work injury, property damage, slip and fall, etc.) and the claim’s settlement. Indeed, this delay may range from a few weeks to several years, depending on the dispute and whether the parties litigate the claim or appeal lower court judgments.
During this period, the insurer may lower or raise the claim reserve amount as it receives additional information on wage loss and medical treatment. Indeed, many insurers review claims files periodically (every 60 to 180 days) to decide whether to adjust reserves.
In addition, the insurer may adjust the reserve as it makes payments. For example, the claim reserve for a workers compensation case may change as the insurer pays indemnity benefits (temporary total disability, temporary partial disability, permanent partial disability) and medical benefits for doctor appointments, surgeries (such as spinal fusion), and physical therapy.
Why Should I Care What the Claim Reserve Is?
As the plaintiff in a personal injury case or the injured employee in a workers comp case, you want the insurance company to set a higher reserve because it will likely lead to a better settlement – sooner.
Insurers often stick to their reserve amount when it comes time to negotiate a compromise and release. Indeed, the claims adjuster’s settlement authority is usually limited to the claim reserve amount.
So, the higher the reserve, the more likely the insurer will offer a car accident or workers compensation settlement that you will accept.
Although it is possible to get the adjuster to revise reserves significantly, it may take time and cause a delay in resolving the claim. For example, the adjuster will have to explain to their boss (and maybe their boss’s boss) why they suddenly need a significant increase in the reserve.
What Can I Do to Increase the Claim Reserve?
You can influence the claims adjuster’s decision and scare them into setting a higher reserve (or revising the amount) by giving the adjuster the information needed to settle the claim as soon as you receive it.
Update the claims adjuster whenever you get new information. Do not wait until the statute of limitations approaches or you reach maximum medical improvement (MMI); many insurance companies try to set “final” reserves within six to nine months of the accident date.
In addition, everything you give to the insurance company pre-suit should focus on showing the worst-case scenario for the insurer.
For example, the following items may influence the claim reserve so that you receive a reasonable settlement:
- A letter describing your injuries and ICD-10 diagnosis codes (omit nothing, even if you think it is minor) and the job duties and activities of daily living (ADL) you can no longer do (or do as well) since the car crash or occupational accident.
- Medical reports that begin with the accident date and continue. You should not provide notes from treatment before the crash or workplace incident.
- Doctor disability letters that address legal and medical causation. This evidence may come from your primary care provider, neurologist, orthopedic surgeon, chiropractor, or other medical practitioner.
- Medical bills, including explanations of benefits (EOBs) from your private insurance showing how much the health care provider charged.
- Photographs of the injuries if you suffered a burn injury or have disfigurement or scarring.
- Accident scene photographs
- Witness statements
- Proof of wage loss from your employer
- Adverse information about the insurer that may cause the adjuster to question the insured’s credibility or the strength of potential defenses
- Settlement or verdict reports for similar cases (if the results were good for the plaintiff/claimant): This information shows the adjuster the potential value of the claim.
- Statements from friends, family members, neighbors, co-workers, or clergy explaining how the claimant has changed since the accident
Send all favorable evidence, whether admissible at trial or not.
We Help Auto Accident Victims and Injured Workers Persuade Insurers to Increase Claim Reserves and Offer Better Settlements
Although it seems counterintuitive, making the insurance adjuster’s life easier can put more money in your pocket after a motor vehicle accident or work injury.
Keep the adjuster updated with evidence showing your injury’s severity and how it affects your ability to work and enjoy your life. Being proactive can increase the claim reserve, often leading to a higher settlement offer.
Contact us today if you have questions about negotiating a top-dollar workers comp or auto accident settlement.
Let’s start on the path to resolving your personal injury case for a reasonable amount.
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