Discuss the loss adjusting process as used in underwriting of insurance policy

Expert Solution

Every Insurance company incurs loss adjusting expense as a part of its operations. It is a part of its due diligence in the sense that it protects the company from paying out on any fraudulent claims. These expenses are to be recorded and adjusted in the books based on a case to case basis.

The adjustments are of two types- Allocated and Non Allocated Expenses. Simply put, if the expenses are allocated to a specific claim, they are called allocated loss adjustment expenses (ALAE). This happens when the company pays an independent third party to investigate the claims made by the client. Here, the cost can be traced back to a particular case of claim.

On the other hand, the expenses that are not allocated to a specific claim are called unallocated loss adjustment expenses (ULAE).These are the general, day to day expenses incurred by the company in the form of overhead charges, or salaries of investigators employed etc.

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