Recoveries and recovery reserves

Recoveries and recovery reserves refer to transactions for money received during the claim’s lifecycle. Most ClaimCenter financial transactions track money that is sent during the claim's lifecycle. However, recoveries and recovery reserves are transactions that track money received during the claim's lifecycle:

  • Recovery reserves are transactions that account for the money expected to be received during a claim’s lifecycle.
  • Recoveries are the transaction for the money received.

Recovery reserves estimate the amount of money received from future recoveries. Recovery reserves function similarly to reserves but add to the ledger how much money is estimated to be received from a recovery instead of how much money is estimated to be paid out with a check.

Recoveries include the following examples:

  • Subrogation: The money received by an insurer from the at-fault driver’s insurance provider to pay for vehicle damages.
  • Deductibles: The money received from an insured contact that is paid to the insurer per the terms of the coverage before the coverage goes into effect.
  • Salvage: The money received from a destroyed vehicle from which the insurer can get back some of its cost by selling the vehicle for scrap.

Recovery and recovery reserve example

Karen Egertson was involved in a collision where her car was damaged and she was injured. Her claim has two exposures: one for the first-party vehicle claim cost and another for third-party liability and property damage.

First party vehicle claim:

  • Recovery reserves: The insurer expects to receive $500 from the salvage of the vehicle.
  • Recovery: The insurer receives $500 dollars from the salvage of Karen’s vehicle.
  • Net total and remaining recovery reserves: $500 dollars goes towards the first part vehicle claim cost exposure, accounting for the total amount of the recovery reserve.

Third-party liability and property damage:

  • Recovery reserves: The insurer expects to receive $4000 from subrogation of the third-party.
  • Recoveries: The insurer receives $3000 from the third party’s insurance policy in subrogation.
  • Net total and remaining recovery reserves: $3000 goes towards the third party liability exposure, with an open recovery reserve of $1000, which may or may or may not be accounted for before the claim is closed.