In which scenario would stair stepping be utilized in reserves?

Stair stepping in reserves is primarily utilized when new information becomes available that impacts the estimation of a claim's value. In this context, the concept refers to adjusting reserves based on updated information that may alter the financial obligations for the insurer. When additional information is obtained, it could either increase or decrease the initial estimation of the reserve needed for the claim, thereby creating a "step" in the reserve amounts.

In the insurance industry, claims can evolve as circumstances change, and data might emerge post-initial claim assessment. For example, further medical reports or legal developments can affect the long-term liability of a claim. By stair stepping the reserves based on this new information, insurance companies can ensure that they are accurately reflecting their financial responsibilities, which is critical for sound financial management and regulatory compliance.

The remaining options do not align with the concept of stair stepping. Claims taking longer than 30 days pertain to the duration of the claims process, while varying severities focus more on the level of the claims themselves. Bulk closing of claims is an operational decision about how to handle multiple claims, rather than a technique for adjusting reserves based on ongoing data analysis.