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Definition

The dollar amount that is the best current estimate of the likely cost of a claim when closed.

Comments

Context:
The reserve allows an insurer or self-insurer to monitor its potential financial liability with respect to a claim. The setting of a reserve marks an acknowledgement by an insurer or self-insurer that it may incur costs in closing a claim.

Origin:
Australian Institute of Health and Welfare 2005. Medical Indemnity National Collection (Public sector) Data Guide, Data items and definitions 2003–04. Canberra: AIHW

Comments:
An insurer or self-insurer can obtain an estimate of its potential liability for finalising claims that are still open by adding up the outstanding reserve amounts for its claims that are still open. Accordingly, the reserve amounts set against open claims are important for an insurer or self-insurer in its budgeting and funds management.

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