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WORKFLOW - INSURANCE

Reserve Estimation Workflow

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Quick Answer

The Reserve Estimation Workflow uses AI to calculate initial claim reserves by analyzing claim characteristics and comparing against historical similar claims. AI provides reserve estimates with confidence intervals, improving reserve accuracy and reducing reserve development over claim lifecycle.

Definition

**Reserve Estimation Workflow** automates initial reserve setting using historical comparable claims and predictive modeling. AI considers claim type, injury severity, damage extent, jurisdiction, and claimant characteristics to estimate ultimate settlement value.

Key Points

  • Analyzes claim characteristics: type, severity, damages, jurisdiction, liability
  • Identifies historical comparable claims (similar characteristics)
  • Calculates reserve estimate using ensemble of prediction models
  • Provides confidence interval (e.g., $15K-$25K with 80% confidence)
  • Segments reserves by coverage: liability, medical, property, legal
  • Updates reserves automatically as new information emerges
  • Reduces reserve development (changes) by 30-40%
  • Improves financial accuracy and reduces reserve volatility

How It Works

1

Claim Characteristic Extraction

Extract key characteristics: claim type, injury description, property damage, liability scenario, claimant demographics, jurisdiction.

2

Historical Comparables

Query historical claims database for similar claims. Filter by claim type, injury/damage severity, jurisdiction, and settlement year.

3

Feature Engineering

Create predictive features: injury severity index, damage cost indicators, jurisdiction multipliers, claimant risk factors.

4

Ensemble Prediction

Run multiple prediction models (regression, random forest, gradient boosting). Aggregate predictions for robust estimate.

5

Reserve Segmentation

Segment total reserve by coverage type: medical payments, property damage, liability, legal defense costs.

6

Confidence Interval

Calculate prediction confidence interval. Wider intervals indicate higher uncertainty requiring adjuster review.

7

Adjuster Review

Present reserve estimate with confidence interval, comparable claims, and key assumptions. Adjuster approves or adjusts.

8

Continuous Update

As claim develops (medical reports, repair estimates, liability determinations), update reserves automatically.

Reserve Estimation Factors

Claim Factors: Loss type (auto, property, liability), injury severity (minor, moderate, severe), property damage extent, liability clarity (clear vs. disputed)

Jurisdiction Factors: State/county location, local jury verdict trends, attorney representation rates, average settlement multipliers

Claimant Factors: Age, occupation, prior claim history, legal representation, treatment provider patterns

Historical Data: Similar claims from past 3-5 years, adjusted for inflation, settlement trends, recent jury verdicts

When Adjuster Review Required

  • •Wide confidence interval (>50% of estimate) indicating high uncertainty
  • •Limited historical comparables (fewer than 10 similar claims)
  • •Novel claim scenario not well-represented in training data
  • •Reserve estimate exceeds adjuster's reserved authority
  • •Significant coverage or liability questions remain unresolved
  • •Catastrophic injury or death requiring senior adjuster expertise