Setting the Reserve from Day One: Why It's So Important

Filing an insurance claim is stressful enough, and most property owners are unprepared for the many hurdles that can get in the way of reaching a fair settlement. One of those hurdles is the reserve. Set at the beginning of the claim process, the reserve has a significant impact on the size of your final settlement. Here’s what you need to know to ensure that the reserve set aside for your claim is fair. 

What is a loss reserve?

The loss reserve is an amount set aside by the insurance company based on how much they estimate a claim is worth. Setting the loss reserve is one of the first steps the insurance company takes when a claim is filed. 

For the insurance carrier, loss reserves is an important financial metric that demonstrates how much of their cash on hand they plan to pay out for future claims or claims that have yet to be settled. It’s typically the largest liability on their balance sheets. They also use the loss reserve metric to determine how much money of the insured’s premium payments should be set aside for the payment of claims. 

Because the loss reserve is such an important calculation for the insurance company, it can be very difficult to negotiate a claim that’s higher than the reserve amount. If the initial reserve is set at $100,000 but the loss turns out to be $500,000, the insurer will be reluctant to pay out money that they didn’t account for. 

How is the loss reserve determined?

The loss reserve is determined by the claim adjuster or claim supervisor. The calculation is based on the adjuster’s opinion and experience, as well as previous similar claims. They may also use information they gather from the insured during early interviews and conversations about the claim. That’s why it’s important to be mindful that, while it’s important to be cooperative with your insurance company, they are concerned with their financial well-being first and foremost. 

Why it’s important to set the reserve from Day One

Many property owners are unaware of the reserve process. When you file a claim, you have no idea that this major potential roadblock is right in your way. This is especially critical when the claim is complex, such as when multiple properties are damaged by a major storm. 

To give yourself the best chance of a fair settlement, take the proactive step to set the right reserve amount early. Of course, this can be a complex process to handle on your own. Even if you have a rough estimate of the cost of your property, understanding the true scope of your damage, including repair costs and potential lost revenue, can be very challenging. Claims for property damage are complex enough. Calculating the loss for issues like cyber security breaches can be even harder. Your claim may cover fines and penalties, a call center hotline for those affected, and forensics, among other items. Without expert knowledge, it’s next to impossible to accurately estimate the size of those losses. 

Plus, the insurance company has the advantage of having access to years of claims data and advanced software. As the claimant, you have your hands full with getting back to business and work, and it’s easy to just let the insurance company set the reserve while you focus on other matters.

There is a way to take some control of the process of setting the reserve without overwhelming yourself. A public adjuster has the same training and insight on historical claim data as the insurance company’s adjuster. But the difference is that they work for you. By working with a public adjuster from the start of the claim process, you can feel confident that the reserve amount set is actually appropriate for your claim. 

The public adjuster will also handle communications with the insurance company, which will help prevent you from saying or doing something that the adjuster could use to set a lower reserve amount.