Under-reserving is defined as which of the following?

Under-reserving is defined as which of the following?

• A. Excess funds set aside for future claims
• B. Insufficient funds set aside for future claims
• C. Funds reserved for defense costs
• D. No funds reserved for future claims

Answer: (B)

Under-reserving means there are not enough funds set aside to cover future claims. In workers’ compensation, reserves represent the estimated ultimate cost of claims that may develop over time. When those reserves are too low, future payments may not be fully funded, creating a funding gap and potential financial strain. The description that best fits this idea is insufficient funds set aside for future claims. The other options describe having too much set aside, reserving only defense costs, or having no reserves at all, none of which capture the risk of too little funding for upcoming claims.

Under-reserving means there are not enough funds set aside to cover future claims. In workers’ compensation, reserves represent the estimated ultimate cost of claims that may develop over time. When those reserves are too low, future payments may not be fully funded, creating a funding gap and potential financial strain. The description that best fits this idea is insufficient funds set aside for future claims. The other options describe having too much set aside, reserving only defense costs, or having no reserves at all, none of which capture the risk of too little funding for upcoming claims.