In the loss ratio calculation, what does LAE stand for?

In the loss ratio calculation, what does LAE stand for?

• A. Loss Adjustment Expense
• B. Liability Allocation Expenses
• C. Legal and Administrative Expenses
• D. Lien and Assessment Expenses

Answer: (B)

Loss Adjustment Expense is the costs incurred to investigate, defend, and settle claims. In the loss ratio, these expenses are included with incurred losses (payments plus reserves) to reflect the total cost of handling claims, not just the payments themselves. This encompasses adjuster salaries, outside professionals, legal defense, and other claim-handling costs. Therefore, LAE stands for Loss Adjustment Expense. The other terms listed aren’t the standard meaning used in this context.

Loss Adjustment Expense is the costs incurred to investigate, defend, and settle claims. In the loss ratio, these expenses are included with incurred losses (payments plus reserves) to reflect the total cost of handling claims, not just the payments themselves. This encompasses adjuster salaries, outside professionals, legal defense, and other claim-handling costs. Therefore, LAE stands for Loss Adjustment Expense. The other terms listed aren’t the standard meaning used in this context.