Using Claim Department Work Measurement Systems to Determine Claim Adjustment Expense Reserves

This paper discusses a methodology for establishing reserves for the portion of loss adjustment expense associated with the cost of claim adjusters. The actuarial literature contains very little material on how to estimate unallocated loss adjustment expense (ULAE) reserves. The literature briefly mentions “transaction based” methods that require claim department time studies. However, many feel that the improvement in estimating ULAE reserves does not justify the high cost of performing such a study. Fortunately, most claim departments of major insurance carriers and third party administrators now utilize sophisticated automated work measurement tools that may capture the type of data that can be used to perform an automated time study.