What is a method to control reserves?

What is a method to control reserves?

• A. Offering lower premiums
• B. Collecting deductibles
• C. Delaying claims processing
• D. Reducing the number of claims filed

Answer: (B)

Collecting deductibles is a method to control reserves because it directly impacts the financial liability of an insurance provider. When policyholders pay deductibles, the insurer retains more of the premium without having to pay out the full amount for a claim. This practice helps stabilize the reserves by minimizing the cash outflow the insurer experiences when claims are made, effectively allowing them to manage their financial resources better over time. In contrast, offering lower premiums could lead to higher claims relative to the income from premiums, potentially increasing the reserves needed to cover future claims. Delaying claims processing might provide temporary relief on cash outflows but can create dissatisfaction among policyholders and might not provide a long-term solution to reserve management. Reducing the number of claims filed sounds advantageous but is not a direct method of controlling reserves; it typically involves broader operational strategies rather than a specific reserve management technique.

Collecting deductibles is a method to control reserves because it directly impacts the financial liability of an insurance provider. When policyholders pay deductibles, the insurer retains more of the premium without having to pay out the full amount for a claim. This practice helps stabilize the reserves by minimizing the cash outflow the insurer experiences when claims are made, effectively allowing them to manage their financial resources better over time.

In contrast, offering lower premiums could lead to higher claims relative to the income from premiums, potentially increasing the reserves needed to cover future claims. Delaying claims processing might provide temporary relief on cash outflows but can create dissatisfaction among policyholders and might not provide a long-term solution to reserve management. Reducing the number of claims filed sounds advantageous but is not a direct method of controlling reserves; it typically involves broader operational strategies rather than a specific reserve management technique.