Definition – ULAE – Unallocated Loss Adjustment Expense
Unallocated loss adjustment expense, better known as ULAE – love those acronyms is one of those terms that does not show up on a loss run, or does it? Let us look at a standard definition first. We can then cover a few points on this rarely-discussed insurance term.
I was cleaning out and responding to the end-of-year questions from the newsletter and blog readers. I came across this emailed question from a self-insured.
“I was in a meeting with our agent/broker when the term unallocated loss adjustment expenses was mentioned. Are we charged for those expenses?”
ULAE vs. ALAE
That is a great question. I first heard it in a meeting when I worked for a workers comp TPA (Third Party Administrator. I had seen the term on a few claims loss runs over the years, but I did not really think anything of it. I was more concerned with ALAE or Allocated Loss Adjustement Expense.
All insurance companies deal with this hard-to-estimate figure. Think of ALAE as costs that can be attributed to a certain claim. Almost any claims loss run will have the column ALAE or Allocated as the heading. Defense attorney fees, independent medical exam fees, court costs, and many more.
Insurance carriers reserve for ULAE just like ALAE. ULAE represents utilities, claims staff salaries, building rent, and a very long list of other items. The IRS has a great list, which can be found here.
Insurance carriers and TPAs are businesses that have to cover their expenses to stay afloat. We all have seen TPAs and carriers that went into receivership because they could not cover those expenses.
An article that explains ULAE in plain speak said that –
Combined with allocated expenses, unallocated loss adjustment expenses help estimate the total claims and processing costs an insurer will pay.
Since ULAE doesn’t tie to a specific claim, there’s no loss or report date, complicating calculations.
Bottom Line
To answer the original question – Yes, you do pay for ULAE, but not directly. A TPA for self-insureds will usually list that they may charge for unallocated loss adjustment expenses as part of those fees. Insurance carriers build it into their premiums. Reading your policy or TPA services agreement may reveal that you are being charged for those expenses.
