Property and Casualty Insurance Practice Exam

Incurred losses include which of the following components?

1. Only amounts paid for claims.

2. Amounts paid, plus expenses related to claims handling.

3. Only regulatory costs associated with claims.

4. All future anticipated losses.

The correct answer is: Amounts paid, plus expenses related to claims handling.

Incurred losses refer to the total losses that an insurance company has accounted for during a specific period, which includes both the amounts paid for claims and the expenses associated with handling those claims. This might encompass costs such as legal fees, administrative expenses, and any other costs related to processing and resolving claims. By including both claim payments and handling expenses, incurred losses provide a comprehensive view of the insurer's liability and cost associated with claims during that period. The other options are limited in scope. Focusing solely on amounts paid for claims does not capture the full picture of incurred losses, as it ignores the necessary expenses tied to managing and resolving those claims. Identifying only regulatory costs disregards significant components of incurred losses, such as the actual payments made to claimants or the administrative and legal expenses. Lastly, considering only future anticipated losses does not fit the definition of incurred losses, which pertain specifically to losses that have already occurred or been recognized, rather than future projections. Thus, option B accurately encapsulates what incurred losses entail.