Loss Adjustment Expense

Loss adjustment expense covers the cost of handling claims, divided into allocated expense attributable to specific claims, including defense counsel and experts, and unallocated expense such as internal claims staff and overhead.

It is reported separately from indemnity in insurer financial statements and reserving.

Alternative Names:

LAE, Claims Expense

Why it Matters?

The allocated expense ratio relative to indemnity is a core measure of claims efficiency and a driver of panel decisions. Where defense spend consistently approaches or exceeds indemnity on a class of claims, the economics argue for early resolution regardless of merit, which is a portfolio judgment rather than a case-level one. Understanding how a carrier client measures this explains much of its settlement posture on modest claims.

Frequently Confused with

Related terms

Frequently asked questions

What is the difference between allocated and unallocated expense?

Allocated expense is attributable to specific claims, such as defense counsel and expert fees. Unallocated expense covers internal claims handling and overhead.

Why does the expense-to-indemnity ratio matter?

Because where defense cost approaches indemnity value on a class of claims, early resolution becomes economically rational regardless of the individual merits.