A claim expense is any expense that an insurance company incurs as a result of having to investigate a claim. For example, when an insurance claim is filed, an adjuster usually needs to examine the property damage and evidence of personal injury to determine a settlement amount. Lawyer compensation and court fees are also possible if a legal dispute occurs.
One common example of a claim expense is the cost of sending an adjuster to examine the damage reported in the claim. Before insurance companies make payments they have to see what type of damage occurred and estimate what the average cost is to repair it. For example, when an insured motorist hits another car and is found to be at fault, the motorist's insurance company wants to make sure that the claim is indeed valid. The company doesn't want to pay for damage that didn't occur as a result of the accident.
Part of the adjuster's job is to question the owner of the damaged car about any previous damage that existed prior to the accident. He may compare the accident report and claim information against the findings of his visual inspection. An adjuster isn't necessarily biased towards the insurance company, but wants to ensure that both sides are treated equitably. Using the example of a damaged vehicle, the adjuster will come up with a settlement amount based on the severity and the average costs associated with fixing that type of vehicle.
There is always the possibility that a claimant will not be satisfied with the insurance company's settlement offer. A claimant may decide to sue the company if he feels that he stands a good chance of being awarded a higher amount from a judge or jury. Personal injury and gross negligence claims are more likely to generate a lawsuit and, therefore, a court-related claim expense.
When an insurance claim ends up in court, the company might have a separate claim expense for an attorney in addition to an investigator. There most likely will be court fees and possibly outside consultants who will need to be brought on board. Any settlements that are handed down from a judge as a result of a trial are not counted as a claim expense.
An insurance company might choose to maintain an active roster of outside consultants for the claim department. If any of these consultants are kept on a retainer basis, this would also be considered to be a claim expense. Even if they are paid on a need basis, consultant activity is one of the costs associated with paying a claim.