In general, Insurance Company LOSS RESERVES, are very complicated and watched closely by the California Department of Insurance. (D.O.I.)
The Insurers have a duty per the D.O.I. to set appropriate reserves when a claim has adequate information.
The Reserve is money put aside from the Insurer “Investment money” so they have enough money to pay claims.
When the Insurer is audited by the D.O.I. and they determine the Insurer is “under reserving” they get fined. These fines are Not cheap.
Insurers typically set Reserves at Full liability and Value regardless of exposure. This is the CA standard so they are Not fined by the D.O.I.
The Insurance Commissionaire Office takes the audit approach to evaluate each claim at 100% merit. Thus the Insurance Co’s are not in the business to over reserve, but are meeting the D.O.I. mandates.
Reserves will fluctuate as factual information becomes available. For liability reserves, the downside can be the duration of the claim, extent of injury, recovery time, statute of limitations and whether a lawsuit is filed.
So who eventually gets caught in the middle, yep, the friendly consumer (aka: Client). So it is not uncommon for clients to get a bit perturbed, but this is the reality of Loss Reserves in the State of California. It is a lobbying argument that will continue between the consumer advocates and Ca D.O.I.
