Losses and Loss-Adjustment Expense

Losses and loss-adjustment expense is self-explanatory when you remember that, for an insurance company, "losses" are claims paid by the insurance company. This term refers to those claims, and the expense in adjusting (processing) them. When a claim is made to an insurance company, someone in the company will review said claim and make sure it's valid, and that the amount is appropriate.

This review may also include gathering pictures or other documentation (estimates) to determine the amount to pay. The company has to estimate how much those two expenses will be, and set aside money to cover it (reserves). Those reserves are considered liabilities. At the end of the year, insurance companies submit reports to regulators and include both the losses and loss-adjustment expense.