This insurance compensates injured and disabled worker. It also provides a death benefit to families whose members are killed on the job. Property and casualty insurance firms have to two basic costs that must be accounted for. This includes loss adjustment expenses and Incurred loss expenses. Loss adjustment expenses are the costs that insurers incur to settle claims such as lawyers fees and court costs.
Loss reserves are the funds insurers set aside to pay future claims.
This is the same concept in accounting when a firm has an account for allowance for uncollectible accounts.