Someone needs to do a study on how reserves are established. It is my opinion there is a lot of political pressure from both carriers and agents to keep reserves from being overstated as it affects the bottomline -short term resuls.
It has been my experience that most insurance companies reserve for the total exposure as soon as the total exposure is known. Every insurance company has what is called “best practices” in which reserving guidelines are included. This outlines to the claims personnel the time frame in which a reserve needs to be established to the full exposure. I believe that if there are problems with the reserves then it is because of poor underwriting.
Having been in the claims end of commercial lines for almost 25 years, I can tell you that a company having a document entitled “Best Practices” in reserving can mean nothing.
If the line adjusters, and the first and second level supervisors, don’t have the skill, training, or time to appropriately address reserving, all the guidelines in the world won’t keep you from being under reserved.
Also, I have worked for three different carriers, all claiming to adhere to “Best Practices”, where requests for appropriate reserve levels were consistently overidden by considerations that had nothing to do with sound claim handling fundamentals, and everything to do with the short-term goals that Steve alludes to: Agent/Broker commissions, ability to renew accounts at favorable rates, “cure” adverse trends, meet production quotas (and thus earn bigger bonuses), justify continuaton of programs that would otherwise be cancelled, etc.
I believe this speaks volumes for the inadequacy of State Regulation. It is time to repeal the anti-trust façade of the McCarran-Ferguson Act and make the multi-state and multinational insurance corporations stop the voodoo accounting. If left as is, the insurance industry will soon have its own “Enron.”
Chris is 100% correct. Everyone has ‘best practices’, but not everyone follows them. Many reasons – Chris has sited some. Focus on expense dollar has limited supervision, and therefore many times no one with experience has their eyes on file. Also, many lawyers in senior management positions and they won’t set reserves until “all the facts are in” thus causing delays.
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Someone needs to do a study on how reserves are established. It is my opinion there is a lot of political pressure from both carriers and agents to keep reserves from being overstated as it affects the bottomline -short term resuls.
It has been my experience that most insurance companies reserve for the total exposure as soon as the total exposure is known. Every insurance company has what is called “best practices” in which reserving guidelines are included. This outlines to the claims personnel the time frame in which a reserve needs to be established to the full exposure. I believe that if there are problems with the reserves then it is because of poor underwriting.
. .. and why is the marketing beginning to implode from where I sit then?
Having been in the claims end of commercial lines for almost 25 years, I can tell you that a company having a document entitled “Best Practices” in reserving can mean nothing.
If the line adjusters, and the first and second level supervisors, don’t have the skill, training, or time to appropriately address reserving, all the guidelines in the world won’t keep you from being under reserved.
Also, I have worked for three different carriers, all claiming to adhere to “Best Practices”, where requests for appropriate reserve levels were consistently overidden by considerations that had nothing to do with sound claim handling fundamentals, and everything to do with the short-term goals that Steve alludes to: Agent/Broker commissions, ability to renew accounts at favorable rates, “cure” adverse trends, meet production quotas (and thus earn bigger bonuses), justify continuaton of programs that would otherwise be cancelled, etc.
I believe this speaks volumes for the inadequacy of State Regulation. It is time to repeal the anti-trust façade of the McCarran-Ferguson Act and make the multi-state and multinational insurance corporations stop the voodoo accounting. If left as is, the insurance industry will soon have its own “Enron.”
Chris is 100% correct. Everyone has ‘best practices’, but not everyone follows them. Many reasons – Chris has sited some. Focus on expense dollar has limited supervision, and therefore many times no one with experience has their eyes on file. Also, many lawyers in senior management positions and they won’t set reserves until “all the facts are in” thus causing delays.