What is the estimated liability for claims reported but not yet recorded?

Question

Options

• Aclaims-adjustment reserve
• Bliability-for-claim reserve
• Cclaims-in-transit reserve
• Dincurred-claim reserve

• A
  2% (1)
• B
  13% (7)
• C
  79% (41)
• D
  6% (3)

Explanation

Claims-in-transit captures the precise scenario described: claims that have been reported to the insurer (the insurer is aware of them) but have not yet been entered into the accounting records - they are literally "in transit" between notification and formal recording.

Option A (claims-adjustment reserve) is wrong because it covers the anticipated costs of administering and settling claims (adjuster fees, legal costs), not the tracking of unrecorded notifications. Option B (liability-for-claim reserve) is wrong because it applies to claims already formally recorded and awaiting payment - the opposite timing. Option D (incurred-claim reserve) is wrong because it addresses claims that have occurred but not yet been reported to the insurer (commonly called IBNR - Incurred But Not Reported), which is the reverse of the question's scenario.

Memory tip: Think of the pipeline: incurred → reported → recorded → paid. The incurred-claim reserve sits at the start (occurred, unreported); claims-in-transit sits one step later (reported, unrecorded). If you remember that "transit" means mid-journey between two points, you can lock in that it belongs between the "reported" and "recorded" stages.

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