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If you are driving with three passengers, and you cause a vehicle accident, then there would be three bodily injury exposures against the policy.
It is literally a movement of money, from one account to another account. The first account is considered an asset because this money is disposable income that the insurance company can use as it pleases.
The second account is considered a liability. This money will be paid to people injured. The insurance company is basically borrowing this money from its creditors, the person making the claim (kind of a trust).
See, the insurance company knows they would have to eventually pay money to this person, so they would treat them as creditors.
Insurance carriers must do this. This is not an option. Trade Regulations require them to do this. Why? Because it protects investors! The reserving practices directly affect the price of that specific insurance company stock.
If the insurance company has too much money on reserves, then the stock price would be lower since that amount would be a liability or money owed to creditors.
If the insurance company has a low amount of reserves, then the insurance carrier would have more money on hand displaying higher assets, and consequently making the stock higher.
The claim adjuster will have her/his supervisor making sure that the reserving amounts are accurate and that they are presented in a timely manner.
Why is this important and does it affect your claim?
The insurance adjuster must reserve the claim seven days from learning about the injury.
How an adjuster does reserve a claim?
She/he simply put a value on your injury that they believe the claim would settle for. They would put the worse case scenario they believe the claim would go for without being unrealistic.
They draw information form the original recorded statements and the facts of the accident. They would know by then if they are dealing with a permanent injury, a soft tissue injury, or a possible fatality. If the impact was not too bad, then the reserving amount would reflect that.
The reserving value is a pure speculation of what the case will settle for. When will the claim settle? It could take two years to settle, but 90% of the time the reserving amount will remain the same.
Insurance adjusters earn their performance reviews by being accurate when reserving and settling within the set amount. They are penalized by “reserve stepping”.
Reserve stepping is when the adjuster moves reserving practices must be adjusted up or down because the claim requires her/him to do that (the injury was worst than anticipated).
This is one of the reasons a claim adjuster will not want to settle a claim for $10,000 if she had set the reserved at $9,000.
She would fight very hard to settle the claim for under $9,000 so she does not have to adjust the reserve and have to explain why she was inaccurate, and be penalized later on.
So if the claim adjuster makes a mistake when reserving bodily injury claims, then the settlement negotiations will drag for a long time.
Why is this troubling? Very simply, the claim adjuster is not looking at the severity of the injury and/or the facts of the accident. They are looking to settle the claim within the amounts he/she decided in the first seven days of the life of the claim.
Understanding how adjusters handle reserves for each exposure will tell you how insurance adjusters truly evaluate bodily injury claims.
Get a great Bodily Injury E-book for more information about reserves and injury negotiation.
A local personal injury attorney can explain your rights and options so that you can make good decisions about your next steps. You don’t have to handle it all on your own! Schedule a free consultation right now(form below).
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