Skip to main content
main content, press tab to continue

Are you carrying legacy claims on your balance sheet?

By Ron Fowler, FCAS, MAAA | August 30, 2023

Carrying legacy insurance liabilities on your balance sheet can reduce letter of credit capacity and add insurer collateral costs to your profit and loss statement. A claim closure project can help.

Are you carrying legacy insurance liabilities on your balance sheet that reduce your letter of credit capacity and add insurer collateral costs to your profit and loss (P&L) statement? A legacy insurance claim closure project can reduce these balances, collateral costs, administrative burdens and managed care costs.

It is generally thought the sole purpose of these projects is to accelerate the final resolution of older claims that may get lost in the handling process. But there is a second purpose often overlooked – the mitigation of exposure related to serious claims that cannot be closed.

A properly executed claim closure project affects your liabilities in two ways:

  • It accelerates the closure rate of a universe of older insurance claims which reduces the liability on these claims to zero
  • It positively impacts the exposure of claims that are not brought to final resolution by reducing the actuarial estimation of the liability

Not all claim closure project teams are created equal. An important question to ask when engaging an insurance claims team to conduct a claim closure and impact project, “Is your actuarial team aware and engaged in the project?” If they are not, you may not realize the benefits and it could result in a negative outcome.

Why are claim closure projects necessary?

Most corporations and insurance carriers engage claims handling firms or hire claims professionals to manage their casualty claims. Due to heavy workloads and other factors, many corporations or carriers also engage in what is commonly called a claim closure project.

How are claim closure projects executed?

Outside consultants work with the current claims professionals to strategize and take action to reduce the claim severity and close claims. The typical focus of these projects is trying to close claims. Unfortunately, focusing only on the impact of the closed claims is missing half the picture. These closure projects should really be called claim impact projects because they create value from claim closures and reduce the severity of open claims that stay open during the project. As an actuary, I can appreciate the natural development (increase in claim severity) over the life of a claim. These projects also reduce the future development and severity of the claims that do not close during the project.

How do the benefits impact balance sheet and collateral costs?

Once the claims portion of the project is completed and tremendous value is created, how do these actions make it into the financials? Typically, an actuary is used to quantify the aggregate liability for all these claims. Actuaries rely on historical patterns and data to project the liability. Stability of these patterns is important. Claim closure projects disrupt these patterns. As a result, actuaries need to apply methods that adjust for these disruptions (faster claim closure, accelerated case reserve setting, faster claim payments) or their methods will be biased and indicate that the liability is worse (higher) instead of better (lower) because of the project. It is very important that the actuary makes these adjustments because if not, actuarial estimates could incorrectly say things got worse, not better financially.

As such, firms need an effective claims consulting team to create impact and an actuary who understands and quantifies the impact (on both open and closed claims) to translate the benefit to the balance sheet. Without an effective claims consulting team and an open-minded actuary, all the benefit of the claim closure project will not be recognized correctly in the balance sheet in a timely manner

There are two major points to remember:

  • An accelerated closure initiative should include an ‘impact’ analysis, conducted by an experienced team of claim professionals
  • The actuarial team must be made aware of the project scope before it starts, and kept apprised throughout the project with periodic updates.

Keeping your actuaries ‘in the light’ throughout your closure and impact project can help dramatically increase the chances that your project will have a positive impact on your balance sheet.  Conversely, engaging an actuary who understands that they need to be flexible and adjust to the trends will improve the odds of financial success.  For those interested the actuarial adjustment process, there is a technical appendix for your review.

For additional technical details, please download the full report.



Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


Managing Director
Growth Leader Global Risk
email Email

Related content tags, list of links Article
Contact us