Claim reserve

A claim reserve is the insurer's estimate of what an open claim will ultimately cost, recorded as a liability on its books. When you report a claim, the claims adjuster or the insurer's claims system sets an initial reserve and then adjusts it as medical records, repair estimates and other information arrive.

Across the company, reserves are a large part of an insurer's financial picture. They include case reserves on known claims plus an estimate for claims that have happened but have not been reported yet, often called IBNR (incurred but not reported). Regulators review reserves, and when an insurer finds that past reserves were too low, it has to add to them, which shows up as higher losses and can feed into rate increases. Reserve changes flow directly into the loss ratio.

For a claimant, the reserve is an internal figure, not a settlement offer. Example: an adjuster may reserve $25,000 on an injury claim early on, then raise it to $60,000 when surgery is scheduled; the eventual settlement could be higher or lower than either figure (hypothetical figures). Insurers generally do not disclose reserves, and they do not bind the insurer to pay that amount. They do reflect how seriously the insurer views a claim. See how long does a car insurance claim take?.