West Virginia Adjusters Practice Exam

What does the term 'loss reserve' refer to in insurance adjusting?

1. The total amount paid for a claim

2. The estimated amount an insurer expects to pay for a claim

3. The fixed cost of the insurance policy

4. The final settlement amount agreed upon

The correct answer is: The estimated amount an insurer expects to pay for a claim

The term 'loss reserve' in insurance adjusting refers to the estimated amount an insurer expects to pay for a claim. This estimate is crucial as it helps insurance companies manage their financial resources effectively, ensuring they have enough capital set aside to cover future claims. Loss reserves are established for each claim and may be adjusted over time as more information becomes available about the claim's circumstances and costs. This predictive measure is essential for maintaining solvency in the insurance company and complying with regulatory requirements that mandate certain financial practices. Understanding this definition is vital for those in the field of insurance adjusting, as it indicates a proactive approach to managing liabilities and ensuring that resources are allocated correctly to address potential future payouts.