The director's audit program must address the adequacy of estimates of future liabilities of claims for all private self-insured employers. The focus is on which of the following?

The director's audit program must address the adequacy of estimates of future liabilities of claims for all private self-insured employers. The focus is on which of the following?

• A. Current cash balances
• B. Administrative costs
• C. Adequacy of estimates of future liabilities
• D. Number of employees

Answer: (C)

The focus is on whether the reserves for future claims are adequate. For private self-insured employers, the ability to pay future claim obligations depends on how accurately and reasonably those estimated liabilities are set. The audit should examine the actuarial methods and assumptions used to project ultimate claim costs, the quality of the data, and whether the reserves reflect expected claim development, inflation, and changes in frequency and severity. It isn’t primarily about current cash balances (liquidity), administrative costs (operating expenses), or the number of employees (which affects exposure but not the direct accuracy of liability estimates).

The focus is on whether the reserves for future claims are adequate. For private self-insured employers, the ability to pay future claim obligations depends on how accurately and reasonably those estimated liabilities are set. The audit should examine the actuarial methods and assumptions used to project ultimate claim costs, the quality of the data, and whether the reserves reflect expected claim development, inflation, and changes in frequency and severity. It isn’t primarily about current cash balances (liquidity), administrative costs (operating expenses), or the number of employees (which affects exposure but not the direct accuracy of liability estimates).