Reserves are funds held or “reserved” to be available to pay your claim sometime in the future. Insurance companies need to have money available in the future to pay claims when they are settled. For your case that started last week, the insurance company knows that it does not have to pay that claim until sometime in the future when your case is ready to be settled. So, it makes sense for the insurance company to reserve some money or make an estimate now of how much money they will need in the future to pay the claim. Therefore, in the beginning of your claim the adjuster will want to gather some basic information about your claim so they can set reserves on the case. It is in your best interest to have the adjuster set the reserves as high as possible so in the future they have funds readily available to pay your claim. You can imagine if the adjuster set reserves at $10,000.00 when the case was really worth $50,000.00. He would have to explain to his supervisor why he undervalued the claim in the beginning, and he will have an incentive to defend his early analysis of the claim, and the claim’s low value. On the other hand, if reserves were set early on at $50,000.00 and it turns out that the case is worth only $45,000.00 then it will be easy to settle that case since money is available and the case seemed to progress as expected.
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