Are loss reserves for high deductible policies net or gross of the deductible?

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Multiple Choice

Are loss reserves for high deductible policies net or gross of the deductible?

In reserving for high deductible policies, the amount the insurer expects to pay on a claim is reduced by the portion the insured will cover through the deductible. Since the deductible is collected from the insured, the reserve should reflect only the loss above the deductible—that’s net of the deductible—assuming the deductible is collectible. If the deductible is deemed uncollectible, you can’t count on it to reduce the insurer’s outlay, so the reserve should be gross (not net) in that case. For example, with a gross loss of 50,000 and a deductible of 5,000, the reserve would be 45,000 if the deductible is collectible; if the deductible is not collectible, the reserve would be 50,000.

In reserving for high deductible policies, the amount the insurer expects to pay on a claim is reduced by the portion the insured will cover through the deductible. Since the deductible is collected from the insured, the reserve should reflect only the loss above the deductible—that’s net of the deductible—assuming the deductible is collectible.

If the deductible is deemed uncollectible, you can’t count on it to reduce the insurer’s outlay, so the reserve should be gross (not net) in that case. For example, with a gross loss of 50,000 and a deductible of 5,000, the reserve would be 45,000 if the deductible is collectible; if the deductible is not collectible, the reserve would be 50,000.

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