Loss Adjustment Expenses
What Does Loss Adjustment Expenses Mean?
Loss adjustment expenses refer to the costs incurred during the investigation and handling of insurance claims. These investigations are part of the insurance company’s due diligence in establishing the validity and accuracy of a claim.
Insuranceopedia Explains Loss Adjustment Expenses
When a policyholder submits a claim, the insurer does not immediately pay out benefits; instead, they first investigate to verify the claim. The expenses incurred during this process typically include fees charged by adjusters, investigators, attorneys, experts, arbitrators, mediators, and other charges related to the claim. In an auto insurance policy, the deductible usually covers these expenses.
Some expenses are set aside for specific claims and are known as allocated loss adjustment expenses (ALAE), while others, such as funds for personnel salaries and a share of overhead costs, are not allocated to a specific claim and are referred to as unallocated loss adjustment expenses (ULAE).
