Insurance theory · page 4 of 10
Losses and claims
The event versus the request for payment, and a claim's life.
In everyday speech the words are interchangeable; in insurance they are not.
- A loss is the event that causes damage: a storm on 12 November, a car stolen from the street.
- A claim is the customer's request to be paid for a loss under their policy. One storm can produce hundreds of claims; a loss nobody reports produces none.
The dates of a claim
| Date | Column | Why it matters |
|---|---|---|
| Loss date | claims.loss_date | Decides which policy period, and which year, the claim belongs to |
| Reported date | claims.reported_date | When the insurer first knows; the gap is the reporting delay |
| Payment dates | claim_payments.paid_on | When money goes out; large claims are paid in parts |
A claim is only covered if the loss happened inside the policy period: a loss on the day before cover started is not Harbour Mutual's to pay.
A claim's life
- Reported: the customer tells the insurer, and the claim is opened.
- Reserved: a claims handler or adjuster estimates what it will cost and sets a case reserve.
- Paid: money is paid, once or in parts; the reserve falls as it is paid.
- Closed, when everything owed is paid, or rejected, when the loss is not covered, falls under the deductible, or is found to be fraudulent.
Paid and incurred
At any date, what a claim has cost so far is the paid amount; what it is expected to cost in total is the incurred amount:
\text{incurred} = \text{paid to date} + \text{reserve}
An open claim's paid amount understates its cost. Use incurred, paid plus reserve, when you measure claims.
At Harbour Mutual the paid amount is the sum of a claim's rows in claim_payments, and the reserve is claims.reserve (zero once a claim is closed).
Check your understanding
Answer every question, then check.