If an insurance adjuster sets claim reserves higher than needed, what is the likely outcome?

When an insurance adjuster sets claim reserves higher than needed, the most likely outcome is higher insurance premiums. Reserves are the funds that an insurer sets aside to pay for future claims. If these reserves are inflated, it indicates that the insurer anticipates needing more money than may actually be necessary when claims are settled.

When an insurance company consistently sets higher reserves, this can lead to an increase in perceived risk and potential liabilities. With increased liabilities, insurance companies often compensate by raising premiums to ensure they maintain profitability and can cover these anticipated costs. Hence, policyholders may notice that their premium rates increase to account for the adjusted reserve levels.

This financial strategy also reflects a broader perspective within the insurer's operations, as excessive reserves can impact the entire pricing strategy across the board. Thus, securing adequate reserves is crucial for sound financial management, influencing both the company's risk assessment and the pricing of its policies.