How to Improve Claim Reserve Accuracy by Structuring Data
The importance of case exposure and expense estimates when determining insurance reserves and legal spend
Accurate loss reserving is considered by some to be one of the most critical functions of a claims department. Reserving is at the core of how an insurance company protects its policyholders and its shareholders. Good reserving practices keep organizations solvent, help to avoid bulk-reserve charges, and can free up highly needed capital.
Having access to good information is therefore critical when it comes to setting loss, medical and expense reserves across all lines of business. Almost nowhere is this truer than in litigated claims, which can have wide swings in outcome potential, based on venue, type of claim, and the impact of both social inflation and nuclear verdicts.
Those experienced in managing litigation know that defense counsel plays a critically significant role by providing the claims professional case exposure and expense estimates. While case exposure is not synonymous with case reserving, it is an incredibly important factor. Claims professionals take these estimates, apply their own analysis and reserving methodologies to it, and arrive at reserves which they hope are accurate.
A litigation management platform that structures data helps claims organizations and their defense attorneys focus this conversation on exposure and expenses (and ultimately about reserves). Exposure and expense estimates are usually provided by counsel as a range. These can now be broken into low, medium, and high estimates, with counsel indicating a specific probability tier of the range.
This helps to both arrive at an actual predicted number and to drive conversations about why the ranges are what they are. These conversations between counsel and the claims professional help to align expectations, set the right strategy, verify potential loss drivers in the case, and ultimately drive more accurate reserves.
Three data metrics that help to set a more accurate reserve
A litigation platform with structured data provides three critically important metrics when it comes to counsel performance that drives accurate reserving:
The platform can measure the ultimate accuracy of counsel’s exposure. Of course, “exposure estimates” are precisely that – estimates – but it is possible to measure which attorneys are better at estimating than others. A report that indicates which attorneys tend to be most accurate at 60 days or 90 days into a case can be extremely valuable.
Similarly, the litigation platform can help to identify which attorneys are best at arriving at a reliable estimate earlier. Anyone can wait until the courthouse steps to come up with a reasonably accurate exposure estimate; but the goal of reserving is to identify the Company’s exposure as early and consistently in the process as possible — so attorneys who have this skill are valuable to the reserving process. A report showing which attorneys tend to have their final exposure estimates in place earliest can be enormously powerful.
Just as reserve stair-stepping is frowned upon as a bad practice, an attorney who adjusts exposure ranges each time a new bit of information comes in is not being overly helpful to the claims professional. Therefore, a report showing how many changes to exposure estimates an attorney makes on each case can inform the claims organization on how reliable any current estimate it.
A case for a claim’s litigation management solution
By providing these reports, a claims litigation management software helps identify high-performing counsel and their ability to provide accurate, timely, and consistent exposure and expense estimates — three critical attributes also helpful to improve your reserving accuracy.
CaseGlide was built with these metrics in mind. By capturing these and other critical data points, claims leaders can better manage their litigated cases and provide more accurate reserves. We understand that access to the data, and providing simple ways to report on it, helps organizations focus more on strategy development and less on jumping through tactical hoops.
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