What are claims reserves?

Claims reserves are funds that insurers set aside to cover the expected costs of claims that are reported but not yet settled, as well as those that may be incurred in the future but have not yet been reported. This practice ensures that the insurance company has sufficient funds to meet its obligations to policyholders when claims are made.

Setting aside these reserves is critical for an insurer's financial stability, as it helps to ensure that they fulfill their promises to policyholders. Insurers regularly assess and adjust these reserves based on claims experience, the nature of the policies, and the potential for future claims. This careful allocation of funds allows companies to maintain adequate liquidity and ensures that they can respond promptly and effectively to claim submissions as they occur.