When should reserves for losses under high deductible policies be established?

• A. Throughout the whole period
• B. Not until the deductible levels are breached
• C. Throughout the whole period, not the point at which the deductible levels are breached
• D. Only after the deductible is breached

Answer: (C)

In high deductible policies, the insurer’s exposure is the portion of losses that exceeds the deductible, but that doesn’t mean reserves should be postponed until a deductible breach is actually observed. Loss reserves reflect the expected ultimate cost of claims that have occurred but are not yet settled, and information about these claims develops over the policy period. Because new information can change the estimated amount above the deductible, reserves should be established and updated throughout the entire period, not only after it becomes clear that the deductible will be breached. This timely reserving ensures liabilities are not understate and aligns with how claims develop and are reported.