While reviewing a group of professional liability claim files, Ifound it necessary to discuss the nature of the exposure and therelativity of the pending case reserves with a seasoned adjuster.Our conversation included an explanation of the intent of casereserves and the downstream importance to underwriters andactuaries. “No one ever explained it to me like that,” was theresponse from this 22-year adjusting veteran.

The response caught me off guard, especially coming from someonewith so many years in the business. I immediately thought of howmany organizations I have inherited or reviewed wherein casereserves remained at inappropriate levels until shortly beforepayment of the loss. In fact, I remember one specificorganization's reserving philosophy: No claim will be reservedbefore its time. The result? Last-minute loss and loss adjustmentexpense increases that created surprises and problems for theproduction department as well as re-insurers.

How can it be that companies spend hundreds of thousands ofdollars on training and development but still wind up in thispredicament? As it turns out, there are a number of reasons.