Actuarial GI Reserving is standard practice in General Insurance companies.
Below are the questions which you may have. As this is just an introduction to Reserving, we are not going to cover any concept but just questions that would be discussed in detail in the upcoming exercises.
In General Insurance Industry, whenever a claim is reported, it takes sometime before the claim is fully paid (or runoff) by the insurer because of a number of reasons.
So it is very important for the company to keep the reserve of money in anticipation of such claims that will need to be paid in the future.
In Liability LOB, the delay could be in years.
Few of them would be:
– delay in claim notification,
– delay in claim notification and payment due to bureaucratic reasons,
– claim payment withheld until the final payment amount is decided by a loss assessor in a motor accident,
– small amounts and a large number of claims by individuals received at different times after a catastrophic event has happened in an area that has damaged the property or might be because the insured is suing the insurer in the court for the final settlement amount to be paid.
An insurer may not know the exact figure for total claims in a year but it has to estimate that number with the highest level of accuracy possible.
The insurer must reserve a certain amount for the liabilities that are incurred but not reported as in the above events or for those which are reported but are yet to be paid.
Incurred But Not Reported – IBNR
Incurred but not enough Reported – IBNER
Outstanding Reported Claims Reserves – OS Reserves
Catastrophe Reserves – Cat Reserves
We will learn more in the later chapters.