When we are notified of a claim, a reserve representing the estimate of the future ultimate loss payment is established. Hence, the money is invested in relatively short instruments that earn us a return; we don't invest in thirty-year bonds. This is fairly conservative, but we want to ensure that money will be available when it is time to pay the claims. We invest 90 percent of the premium amounts received in the bond market and 10 percent in the equity market. When premiums are received, the funds are immediately invested. If the state auditors arrive to audit the files and find an insurer has given credits or surcharges without valid reasons for doing so, the insurer may have to pay a fine; hence, one has to be careful that debits and credits are done in accordance with reasonable underwriting standards. All deviations from filed rates are maintained in files, since each state has premium rates in accordance with their filed rates. Conversely, if the insured had two or three claims in the past three years, the insurer may surcharge the account 25 percent, annotating the file accordingly. The first action undertaken by the insurance company upon being notified of the claim is to have a claim adjuster visit the salon to determine if, in fact, the salon was negligent in any fashion. The afflicted individual claims that the salon owner was negligent because a rug at the front door caused the fall. Let's say a policyholder has a beauty salon where a customer has tripped and fallen, suffering an injury.

A commercial liability claim will be used as an example to explain the claim process. But larger and more complex claims take time to investigate to determine the extent of the claim payment. Some property damage claims or collision damage claims are easy and are paid in six months. It usually takes anywhere from twenty-four to sixty months to pay a claim.