coverage units on LRC
Could you further elaborate on this statement "the coverage period extends to the end of the period in which insurance contract services are provided and would not extend to the period over which claims are settled (unless claims in settlement are included in LRC rather than LIC)."
how can you possibly have a settlement for liability that has not yet occurred? and does this mean the coverage period doesn't extend to the end of the contract? when is the end of the coverage period when we do include settlement in LRC?
Comments
I think it's saying for example, let's assume a 1-year coverage period policy incurs a claim in month 11/12. It could still be unsettled (not paid) in month 13, 14, ... (beyond month 12) but the coverage period would end at month 12 and so would the contract boundary. We don't wait for all claims to be paid out to end the contract boundary because that could be years long?
Adipelino is right for the first statement. An example of "unless claims in settlement are included in LRC rather than LIC" is an adverse development cover where the definition of an insured event is the determination of the ultimate loss amount. In this case, claims in settlement will all go to the LRC
if coverage units are the # of services/contracts you are liable to, the first example show that the remaining expected CUs decreases to 0 by the end of the year. I would expect it to not necessarily go to 0. If the company is growing wouldn't the CUs be increasing? or is it set to 0 to simplify?
Generally you would look at them from the perspective of a group of contracts, which means yes they would increase until year-end and then gradually start to taper off until two years later. For this example, you can actually think of it as a group of contracts at Jan 1, and no additional contracts are written after and its just running off. This is more meant to highlight conceptually how coverage units get released but yes in actuality there is a bit more nuance that you have rightly recognized