Loss Adjustment Expense (LAE) is a term used to define the cost of an insurance company’s investigation and settlement of an insurance claim. This can include allocated expenses, such as cost of labor, expert witness fees, court fees, and mileage incurred during an active investigation, as well as unallocated expenses for maintaining the claims department and general overhead fees. Loss Adjustment Expense also includes any legal fees associated with the claim, including costs associated with court proceedings or settlements.
LAE normally represents a sizeable investment on the insurance company's part. Many companies will go to great lengths to detect and defend against potential FAEs, or fraudulent insurance activity, in order to protect themselves from unnecessary expense. The cost of LAE can be substantial and is often the largest component of an insurance company’s expenses.
For some types of insurance claims, such as those involving serious physical injuries or death, the costs can be immense, even leading to insolvency for some smaller carriers. As a way to balance these potentially catastrophic costs, many insurance companies will recoup some or all of the LAE costs directly from policyholders as part of their claims process.
The cost of Loss Adjustment Expense is a necessary evil of offering insurance policies and can be a significant financial burden on many insurance companies. However, proactively and diligently investigating claims is essential to protecting the interests of insurers and ensuring the long-term solvency of the insurance market. As a result, many companies have implemented highly efficient and automated systems to review and process claims quickly and accurately. This has become increasingly important in recent years as the number of claims and the associated LAE costs increase.
LAE normally represents a sizeable investment on the insurance company's part. Many companies will go to great lengths to detect and defend against potential FAEs, or fraudulent insurance activity, in order to protect themselves from unnecessary expense. The cost of LAE can be substantial and is often the largest component of an insurance company’s expenses.
For some types of insurance claims, such as those involving serious physical injuries or death, the costs can be immense, even leading to insolvency for some smaller carriers. As a way to balance these potentially catastrophic costs, many insurance companies will recoup some or all of the LAE costs directly from policyholders as part of their claims process.
The cost of Loss Adjustment Expense is a necessary evil of offering insurance policies and can be a significant financial burden on many insurance companies. However, proactively and diligently investigating claims is essential to protecting the interests of insurers and ensuring the long-term solvency of the insurance market. As a result, many companies have implemented highly efficient and automated systems to review and process claims quickly and accurately. This has become increasingly important in recent years as the number of claims and the associated LAE costs increase.