Insurance claim expenses are divided primarily into two categories: allocated and unallocated claim expenses. An allocated claim expense is a financial loss that is related to a specific event that is reimbursed by your insurance provider. In contrast, an unallocated claim expense is a financial loss related to an event that will not be covered by your policy. Your insurance provider is liable for all allocated claim expenses covered by your policy.
Insurance Claim Expenses
Your allocated claim expenses include court costs, fees, and expenses of independent adjusters, lawyers, witnesses and investigative services that are related to your claim. Unallocated expenses, which represent financial losses that are not covered by the insurer, include salaries, rent and computer expense for the insurers' claims department. The most common form of adjusted claim expenses, which are included as allocated claim expenses, are investigative expenses, such as research and forensic or defense costs, according to Armfield, Harrison & Thomas, Inc.
Documenting Allocated Claim Expenses
The amount of your allocated claim expenses is the sum total of your financial costs demanded under a policy of insurance or reinsurance. You must provide accurate documentation of your accrued expenses, such as legal counsel, expert witnesses, police reports, engineering reports and independent adjustment if assigned to a particular claim, to substantiate your allocated claim expenses. Your most critical and costly allocated claim expenses generally are attorney's fees and court costs, which should be recorded separately from your other allocated claim expenses, due to the complexity, and with as much detail possible.
Calculating Allocated Claim Expenses
Claims professionals determine whether a liability exists, or may exist for a covered incident. Insurance providers usually generate detailed data surrounding an outstanding insurance claim using their own management information systems. Certain types of claims, such as for accident benefits and U.S. workers compensation insurance for example, rely on predetermined, tabular values to determine the allocated claim expense amount. However, a claims professional may choose to assess independently a more complex claim to determine more the scope of the claim.
Anticipating Allocated Claim Expenses
Accurately anticipating and budgeting for allocated claim expenses is crucial for insurance providers who may be required to reimburse multiple claims at any time, due to unforeseen catastrophes. The insurance budget data projections for 2012-2013, according to the University of Virginia, Office of Risk Management, include auto liability insurance that will cover $1 for every $100 of a car's estimated cash value; general tort liability for full-time employees will cost $34 per worker annually; medical malpractice liability, which may increase up to 10 percent; and a three percent increase in property insurance, which would cover $0.059 cents per for every $100 of the total property value.
- International Risk Management Institute, Inc: Claim Expense
- Armfield, Harrison & Thomas, Inc.: Allocated Claim Expense
- Lincoln General Insurance Company: Selected Insurance Terms
- VLex: Reimbursement of Claims Expense
- Casualty Actuarial Society: Estimating Unpaid Claims Using Basic Technique
- University of Virginia: Office of Risk Management; Insurance Budget Projections for FY'12/13
- Thinkstock/Comstock/Getty Images