Which of the following statements concerns the types of unpaid claim adjustment expenses included in the unpaid claim estimate?

Prepare for the CAS Exam 6 with detailed study materials. Use flashcards and multiple-choice questions, each with hints and explanations, to get exam-ready!

Multiple Choice

Which of the following statements concerns the types of unpaid claim adjustment expenses included in the unpaid claim estimate?

When you set an unpaid claim estimate, you’re not just forecasting the ultimate losses themselves—you’re also accounting for the costs of handling those claims. The question focuses on what kinds of claim adjustment expenses are included in that estimate. These expenses, often called loss adjustment expenses (LAE), come in two main types. Allocated LAE are costs that can be tied to specific claims, such as defense attorney fees, expert witness costs, and other services charged to particular claims. Unallocated LAE are general overhead costs that support the claims department but aren’t allocated to any single claim, like staff salaries and office overhead. In a proper reserve, both components (when applicable) are reflected to ensure the reserve covers the expected costs of adjusting and settling claims. Other choices—time to payment, currency, or the insurer’s tax rate—don’t describe which kinds of adjustment expenses are included in the unpaid claim estimate; they relate to timing, accounting conventions, or after-tax effects rather than the composition of the expenses included in the reserve.

When you set an unpaid claim estimate, you’re not just forecasting the ultimate losses themselves—you’re also accounting for the costs of handling those claims. The question focuses on what kinds of claim adjustment expenses are included in that estimate.

These expenses, often called loss adjustment expenses (LAE), come in two main types. Allocated LAE are costs that can be tied to specific claims, such as defense attorney fees, expert witness costs, and other services charged to particular claims. Unallocated LAE are general overhead costs that support the claims department but aren’t allocated to any single claim, like staff salaries and office overhead. In a proper reserve, both components (when applicable) are reflected to ensure the reserve covers the expected costs of adjusting and settling claims.

Other choices—time to payment, currency, or the insurer’s tax rate—don’t describe which kinds of adjustment expenses are included in the unpaid claim estimate; they relate to timing, accounting conventions, or after-tax effects rather than the composition of the expenses included in the reserve.

More practice questions