How Do Insurance Reserves Affect Car Accident Cases?

If you’ve filed a car accident claim, there’s an important element of the process happening behind the scenes: the insurance company’s decision to set reserves on your claim. Reserves represent the amount of money the insurer sets aside to cover the potential payout for your claim. While these reserves are an internal accounting mechanism, they can have a significant impact on the settlement process, influencing the offers you receive and the timeline for resolution.

One lesser-known but critical factor is that insurers are motivated to close reserves as quickly as possible. When an insurance company keeps reserves open, it ties up their financial resources. Closing reserves by settling a claim allows them to free up that money for other purposes, which can drive their willingness to negotiate and finalize your settlement.

“Insurance companies don’t like open reserves lingering on their books—it’s a liability they’re eager to close. This creates an opportunity for claimants, as insurers may be more motivated to settle if it means closing those reserves. Knowing how to leverage this dynamic can make all the difference in achieving a fair settlement.”— John J. Malm, Naperville car accident attorney

In this blog, our Illinois accident attorneys explore what reserves are, why they matter in your car accident claim, and how a knowledgeable injury attorney can help ensure they’re set appropriately to benefit you during settlement negotiations.

What Are Reserves in an Insurance Claim?

When an insurance company receives a claim, it sets aside a specific amount of money, known as reserves, to account for the anticipated costs of resolving the claim. Reserves are part of the company’s financial planning and represent the insurer’s best estimate of its liability for the case.

What Do Reserves Cover?

Reserves typically account for:

Medical Expenses: Current and future treatment costs for injuries sustained in the accident.
Lost Wages: Compensation for time missed from work due to your injuries.
Legal Costs: Anticipated costs if the case goes to litigation.
Pain and Suffering: Non-economic damages, if applicable.

These amounts are not fixed and can be adjusted as new evidence becomes available or as the claim progresses, especially if the injured party’s injuries are worse than the adjuster initially thought, such as a need for surgery.

Why Reserves Influence Settlements

Reserves play a crucial role in how insurance companies handle claims. Here’s why:

1. Reserves Set the Baseline for Settlement Offers

The reserve amount often dictates the ceiling for settlement negotiations. The insurance adjuster cannot typically offer a settlement that exceeds the reserves. If the reserves are set too low, you may receive a low initial offer that doesn’t fully cover your damages. On the flip side, higher reserves can lead to more reasonable offers from the start.

2. Insurers Are Motivated to Close Reserves

Insurance companies strive to close reserves as quickly as possible. Open reserves represent a financial liability that must remain accounted for on the company’s books, tying up resources that could be used elsewhere. By settling a claim and closing the reserves, the insurer reduces its financial obligations and streamlines its accounting.

“Insurers operate with profitability in mind, and open reserves disrupt their balance sheets. When reserves remain open for too long, insurers often become more willing to settle, even if it means offering a fairer payout to close the claim and free up resources.” — John J. Malm, Naperville car accident attorney

The Importance of Appropriately High Reserves

One of the most critical aspects of reserves is ensuring they’re set at an appropriately high level. Why? Because the reserve amount acts as the foundation for the insurance company’s settlement calculations. If reserves are set too low, it can limit the insurer’s ability or willingness to offer a fair settlement.

How a Knowledgeable Illinois Personal Injury Attorney Can Help

A skilled car accident attorney plays a vital role in influencing the reserve-setting process. Here’s how they can help ensure reserves are set at a level that works in your favor:

Comprehensive Documentation: Attorneys ensure that your claim is supported by detailed evidence, such as medical records, accident reports, and expert opinions. This information compels the insurer to acknowledge the full scope of your damages and set higher reserves.
Long-Term Impact Assessment: Experienced attorneys present a clear picture of your future needs, including ongoing medical care, lost earning potential, and non-economic damages like pain and suffering. These factors encourage insurers to allocate higher reserves.
Strategic Communication: Attorneys know how to frame your case in ways that highlight its value, prompting the insurer to take it more seriously during the reserve-setting process.

When reserves are set appropriately high, it positions you more favorably for negotiations later. The insurer is more likely to offer a settlement that reflects your true damages if their reserves align with the value of your claim.

“Getting reserves set at the right level is like laying a foundation for your case. It ensures that, when settlement discussions happen, the insurance company has already accounted for the full value of your claim. Without this, you’re starting negotiations on uneven ground.” — John J. Malm, Naperville car accident attorney

How Reserves Are Calculated

Insurance adjusters rely on several factors to set reserves, including:

Injury Severity: More severe injuries typically result in higher reserves due to the costs of treatment and potential long-term care.
Medical Documentation: Detailed records of your diagnosis and treatment help insurers estimate your medical expenses.
Property Damage Assessments: Appraisals for vehicle repairs or replacement contribute to the reserve amount.
Liability Assessment: If liability is unclear or contested, the insurer may reserve more to account for potential legal costs.
Comparable Cases: Historical data from similar claims often guide reserve-setting decisions.

Reserves are not static. They can be adjusted throughout the claims process as new evidence emerges or as negotiations evolve.

The Role of Closing Reserves in Driving Settlements

One of the key reasons reserves influence settlements is that insurers want to close out reserves as quickly as possible. This desire creates leverage for claimants, especially when:

The Claim Has Been Open for an Extended Period: If the reserve remains open for months or even years, the insurer may become more motivated to settle.
Litigation Looms: Legal proceedings increase costs and extend the duration of open reserves. Insurers may offer better settlements to avoid long litigation.
Reserves Are Overestimated: If the insurer realizes that the reserves were set higher than necessary, they may settle quickly to recapture unused funds.

By understanding this dynamic, you and your attorney can time negotiations to take advantage of the insurer’s desire to close reserves.

How to Leverage Reserves for a Better Car Accident Settlement

To maximize your settlement, it’s essential to ensure that reserves are set appropriately and to use the insurer’s desire to close reserves to your advantage.

1. Provide Strong Evidence Early

Comprehensive documentation strengthens your claim and ensures that reserves are set at a level that reflects your damages. Key evidence includes:

Detailed medical records and bills.
Proof of lost wages, such as pay stubs or employer letters.
Photos of vehicle damage and accident-related injuries.
Expert opinions, such as accident reconstruction or medical specialists.

2. Communicate Long-Term Costs

Make sure the insurer understands the long-term impact of your injuries. This includes future medical care, permanent disabilities, and reduced earning capacity. Insurers are more likely to adjust reserves upward when they recognize ongoing costs.

3. Work With an Experienced Attorney

At John J. Malm & Associates, our knowledgeable Illinois car crash attorneys ensure that reserves are set at an appropriate level from the outset and uses this to your advantage during settlement negotiations. By presenting compelling evidence and understanding the insurer’s internal processes, an attorney can help secure a settlement that reflects the true value of your claim.

Contact the Dedicated Illinois Car Accident Lawyers at John J. Malm & Associates

The reserve-setting process is a critical but often overlooked factor in car accident claims. Ensuring reserves are set appropriately high and understanding the insurer’s motivation to close them can have a profound impact on the outcome of your case.

At John J. Malm & Associates, with offices in Naperville and St. Charles, we bring over 90 years of collective litigation experience to every case. Our Illinois car accident attorneys understand the strategies insurers use, including how reserves influence settlement decisions, and we work tirelessly to ensure our clients receive the compensation they deserve.

If you’ve been injured in a car accident and want to ensure your claim is handled properly, contact us today for a free consultation. Let us help you navigate the process and secure the settlement you deserve.