What is the purpose of loss run reports, and how do they support claims management and pricing?

• A. They summarize open/closed claims, reserves, and payments; support reserving accuracy, trend analysis, and rate setting.
• B. They predict future weather events.
• C. They determine executive bonuses.
• D. They replace all claims data with hypothetical numbers.

Answer: (A)

The main idea being tested is how loss run reports function as a practical tool for claims management and pricing by consolidating all claim history into a single, actionable view. A loss run report pulls together open and closed claims, current reserves, payments to date, and often claim counts and severities. This provides a clear snapshot of the insurer’s exposure and the status of each claim.

For reserving accuracy, the report shows how much has been reserved versus what has actually paid and what remains outstanding. That helps adjusters verify that reserves are appropriate and re-estimate them as new information emerges, reducing the risk of under- or over-reserving. For trend analysis, the compiled data lets you detect patterns in frequency, severity, development over time, and emerging risk areas. By observing these trends across policies or portfolios, you can forecast future losses more reliably.

Those forecasts feed pricing decisions because historical loss experience informs expected future losses, which in turn drives rate setting, loss ratio targets, and the overall adequacy of premiums. Loss run reports also aid claims management by highlighting aging or high-cost claims, guiding settlement or early intervention decisions, and monitoring handling performance. They provide a transparent record useful to underwriters and insureds for risk management and verification of loss outcomes.

These reports aren’t about predicting weather, determining executive bonuses, or replacing data with hypothetical numbers, so they don’t serve those purposes.