Associate in Claims (AIC) 30 – Claim Handling Principles and Practices Practice Test

The idea being tested is using an average expected payment per claim to size the reserve across a group of claims. In the Average Value Method, you estimate the typical or mean amount you expect to pay for a single claim and then apply that average to the set of outstanding claims. Practically, you determine the average loss per claim, and multiply it by the number of claims (or sum the expected values across claims) to get the total reserve needed to cover future payments.

This approach is straightforward and transparent, especially when claim sizes are reasonably similar or you need a quick, high-level estimate. It assumes most claims will settle near that average, which is why it’s simple but may misprice reserves if there’s wide variation in claim severities.

Other approaches involve more detailed calculation methods that model development and timing (not just a simple average) or focus on specific categories of damages rather than applying a uniform average across all claims, so they don’t describe reserving by an average per-claim value.