Guide: loss run terms
Paid vs reserved vs incurred: how the three columns on a loss run fit together
Paid is money already spent on a claim. A reserve is the carrier's estimate of what is still to be paid. Incurred is paid plus reserve, the total the carrier currently expects the claim to cost. All three are measured as of the report's valuation date.
General information, not advice. This is not insurance, legal or financial advice. Requirements differ by carrier, state and market; follow the instructions of the market you are approaching.
Definitions
History, estimate, and the total of both
Paid is history: money already spent, usually split into loss and allocated expense. A reserve, also called outstanding or a case reserve, is an opinion about the future, and it moves as a claim develops. Incurred adds the two. The glossary on how to read a loss run defines every other column.
The split matters because two claims with the same incurred can mean different things. A closed claim at $40,000 is a finished fact. An open claim at $40,000, with $30,000 of it reserved, is a forecast. That is why a submission should show paid and reserve beside incurred.
Reserves on a loss run are set claim by claim. They do not usually include an allowance for claims not yet reported, so a recent year can grow after the valuation date even when no open claim changes.
Steps
How to read the three columns together
The order below catches the usual problems early.
- Test which basis incurred usesOn one row, add paid loss and reserve, then add paid expense. The sum that equals the printed incurred is the report's basis. Note it.
- Check the closed claimsA closed claim should carry no reserve, and its incurred should equal what was paid. A closed claim with a reserve is worth a question.
- Split open from closedTotal paid, reserve and incurred for open and closed claims separately. The open total is where the estimates sit.
- Find the reserve's shareDivide reserve by incurred for each policy year. The higher the share, the more of that year is still an estimate.
- State the basis in the submissionSay whether incurred includes expense, and whether amounts are before or after a deductible or recoveries.
Worked example
Four claims, one sum across
Four claims from the general liability sample on the home page. Paid loss plus paid expense plus reserve equals incurred in every row.
| Claim | Situation | Paid loss | Paid expense | Reserve | Incurred |
|---|---|---|---|---|---|
| GL-25-0066 | Closed, paid in full | 9,800.00 | 2,310.00 | 0.00 | 12,110.00 |
| GL-24-0388 | Closed, expense only | 0.00 | 1,275.00 | 0.00 | 1,275.00 |
| GL-25-0214 | Open, part paid | 14,250.00 | 6,480.00 | 22,000.00 | 42,730.00 |
| GL-26-0240 | Open, nothing paid yet | 0.00 | 0.00 | 7,500.00 | 7,500.00 |
| Total | 24,050.00 | 10,065.00 | 29,500.00 | 63,615.00 |
Of the $63,615.00 incurred, $29,500.00 (about 46 percent) is reserve: an estimate that can still move.
Pitfalls
What goes wrong
- Two bases in one schedule. One carrier's incurred includes expense and another's does not, so years look different when they are not.
- A reserve read as a result. Reserves fall as well as rise. The figure is an estimate at one date.
- A total and its parts both added. Some reports print indemnity, medical and a total paid. Adding all three double counts. See the workers' comp guide.
- Gross against net. Amounts before a deductible or recoveries cannot be compared with amounts after.
- Incurred below paid. On one basis this points to an error or a recovery. Ask the carrier which column is right.
The tool
How LossRun Pro helps
LossRun Pro keeps paid loss, paid expense, reserve and incurred in separate columns. When a report leaves incurred blank it computes the figure from the other amounts, on the basis the report's own rows follow, and marks it as computed. It warns when a printed incurred appears to leave expense out, and it flags incurred below paid and closed claims that still carry a reserve. Convert a report on the loss run to Excel page. Free: 1 file per day, up to 10 pages, no account. Files over 10 pages are converted up to page 10 on the free allowance; a page code converts the whole file, up to 150 pages. See pricing.
FAQ
Questions about paid, reserved and incurred
Is incurred always paid plus reserve?
On most reports, yes. Some include expense in incurred and some print incurred loss and incurred expense in separate columns. Test one row to see which basis a report uses.
Can a reserve go down?
Yes. An adjuster can lower a reserve as a claim develops favorably or settles for less than expected, and can raise it too. That is why the valuation date matters. See open claims on a loss run.
Why is incurred sometimes less than paid?
On one basis it should not be. Common causes are recoveries netted from one column only, a typing or conversion error, or paid that includes expense while incurred does not. Ask the carrier.
What does a claim with nothing paid and a reserve mean?
The carrier has set money aside but paid nothing yet, often because the claim is new or still under investigation. It counts toward the claim count and incurred, as GL-26-0240 shows above.
Should a submission show paid or incurred?
Both, with the reserve beside them. Underwriters usually work from incurred, and paid shows what has actually gone out. Say which basis you used.
How does this connect to the loss ratio?
The loss ratio uses incurred as its numerator, so the basis you choose changes the ratio. See loss ratio from loss runs.