Casualty Loss Reserve Seminar 2001

Session Number 8

- Reserving –

How and When Should You Slice the Cake?

(Workers’ Compensation)

Timothy L. WisecarverTimothy L. WisecarverFCAS, FCA, MAAAFCAS, FCA, MAAA

September 11, 2001September 11, 2001

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Casualty Loss Reserve Seminar 2001 How and When Should You Slice the Cake?

WHY DO WE SLICE THE DATA CAKE?WHY DO WE SLICE THE DATA CAKE?

Emergence PatternsEmergence Patterns

Settlement PatternsSettlement Patterns

Development PatternsDevelopment Patterns

Loss FrequencyLoss Frequency

Loss SeverityLoss Severity

Slicing Can Find and Use Differences in DataSlicing Can Find and Use Differences in Data

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Factors Affecting Data Organization DecisionsFactors Affecting Data Organization Decisions

AvailabilityAvailability CredibilityCredibility HomogeneityHomogeneity - Within a Slice- Within a Slice - Across Slices- Across Slices

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

RULES FOR THIS PRESENTATIONRULES FOR THIS PRESENTATION

Many Possible Slices are ShownMany Possible Slices are Shown Many Possible Slices are Many Possible Slices are Not Not ShownShown Some Important Differences are NotedSome Important Differences are Noted Other Significant Differences are Other Significant Differences are NotNot Noted Noted ““Factors Affecting Data Organization Factors Affecting Data Organization

Decisions” are Assumed to Apply to All SlicesDecisions” are Assumed to Apply to All Slices

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

IndemnityIndemnity

vs.vs.

MedicalMedical

DifferencesDifferences Payment ComputationPayment Computation InflationInflation Payment TimingPayment Timing Claim MixClaim Mix Cost ContainmentCost Containment Population Being PaidPopulation Being Paid

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

BenefitsBenefits

vs.vs.

Loss AdjustmentLoss Adjustment

DifferencesDifferences

Payment ComputationPayment Computation InflationInflation Payment TimingPayment Timing Population Being PaidPopulation Being Paid

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

IndemnityIndemnity

vs.vs.

Medical-OnlyMedical-Only

ClaimsClaims

(Medical Losses)(Medical Losses)

DifferencesDifferences

Payment TimingPayment Timing

Cost ContainmentCost Containment

Medical Service MixMedical Service Mix

Injury MixInjury Mix

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

VocationalVocational

RehabilitationRehabilitation

vs.vs.

Other Indemnity LossesOther Indemnity Losses

DifferencesDifferences

Payment Payment ComputationComputation

InflationInflation Payment TimingPayment Timing Cost ContainmentCost Containment AdministrationAdministration

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Branch OfficeBranch Office

oror

RegionRegion

DifferencesDifferences

AdministrationAdministration Claims PersonnelClaims Personnel Industry MixIndustry Mix Injury MixInjury Mix Economic FactorsEconomic Factors

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Case Reserver(s)Case Reserver(s)

DifferencesDifferences

AccuracyAccuracy ConsistencyConsistency Work EnvironmentWork Environment

CaseloadsCaseloads

TrainingTraining

BacklogsBacklogs Case MixCase Mix

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

InsuranceInsurance

CompanyCompany

DifferencesDifferences

Book of BusinessBook of Business

Pricing ProgramsPricing Programs

ExpertiseExpertise

Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Self Insured EntitySelf Insured Entity

Individually Self InsuredIndividually Self Insured

Member of Group PlanMember of Group Plan

DifferencesDifferences

Cost ContainmentCost Containment IndustryIndustry Injury MixInjury Mix AdministrationAdministration Available InformationAvailable Information Economic FactorsEconomic Factors

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Cost ContainmentCost Containment

PPOPPO

CCOCCO

Fee ScheduleFee Schedule

MarketMarket

DifferencesDifferences

PricesPrices InflationInflation Payment TimingPayment Timing Injury MixInjury Mix Loss AdjustmentLoss Adjustment Risk SelectionRisk Selection Service ComplementService Complement

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

ProducerProducer

DifferencesDifferences

Risk SelectionRisk Selection Pricing ProgramsPricing Programs Industry MixIndustry Mix Injury MixInjury Mix Service ComplementService Complement

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

ReinsuranceReinsurance

ArrangementsArrangements

CededCeded

AssumedAssumed

DifferencesDifferences

Risk SelectionRisk Selection Administration Administration Claim MixClaim Mix Cost ContainmentCost Containment Coverage TermsCoverage Terms

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Self-InsuredSelf-Insured

AdministrationAdministration

SelfSelf

TPATPA

DifferencesDifferences

ExpertiseExpertise Cost ContainmentCost Containment Data Retrieving AbilityData Retrieving Ability Data Reporting AbilityData Reporting Ability Motivation, IncentivesMotivation, Incentives Case Reserve AccuracyCase Reserve Accuracy

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Market SegmentMarket Segment

VoluntaryVoluntary

Direct AssignmentDirect Assignment

Servicing CarrierServicing Carrier

DifferencesDifferences Risk SelectionRisk Selection ExpertiseExpertise Industry MixIndustry Mix Injury MixInjury Mix Pricing ProgramsPricing Programs Motivation, IncentivesMotivation, Incentives Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

DeductiblesDeductibles

LargeLarge

SmallSmall

NoneNone(Claim, Accident, Aggregate)(Claim, Accident, Aggregate)

DifferencesDifferences

InflationInflation Payment TimingPayment Timing Case Reserve AccuracyCase Reserve Accuracy Risk SelectionRisk Selection Motivation, IncentivesMotivation, Incentives Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

JurisdictionJurisdiction

State Act (Which One(s))State Act (Which One(s))

USL&HWUSL&HW

FELAFELA

DifferencesDifferences

Benefit LevelsBenefit Levels Payment ComputationPayment Computation InflationInflation Payment TimingPayment Timing AdministrationAdministration Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Pricing Program(s)Pricing Program(s)

Guaranteed CostGuaranteed Cost

Loss SensitiveLoss Sensitive

DifferencesDifferences

Risk SelectionRisk Selection

Cost ContainmentCost Containment

Market ConditionsMarket Conditions

Motivation, IncentivesMotivation, Incentives

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Size of LossSize of Loss

CatastrophesCatastrophes

Large LossesLarge Losses

Other LossesOther Losses

DifferencesDifferences

Case Reserve AccuracyCase Reserve Accuracy InflationInflation Payment TimingPayment Timing Claim MixClaim Mix Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Layer of LossLayer of Loss

DifferencesDifferences

InflationInflation Case Reserve AccuracyCase Reserve Accuracy Payment TimingPayment Timing Claim MixClaim Mix Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Claim StatusClaim Status

Open vs. ClosedOpen vs. Closed

DifferencesDifferences

Case Reserve AccuracyCase Reserve Accuracy Payment TimingPayment Timing Claim MixClaim Mix Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Traumatic InjuryTraumatic Injury

vs.vs.

Occupational DiseaseOccupational Disease

DifferencesDifferences

Medical Service MixMedical Service Mix Case Reserve AccuracyCase Reserve Accuracy Payment TimingPayment Timing Claim MixClaim Mix Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Type of InjuryType of Injury

DeathDeath

Permanent/TemporaryPermanent/Temporary

Partial/TotalPartial/Total

Medical OnlyMedical Only

DifferencesDifferences

Accuracy of ReservesAccuracy of Reserves Payment TimingPayment Timing Payment MixPayment Mix Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Suggested “Slice”Suggested “Slice”

Special AccountsSpecial Accounts

SizeSize

ManagementManagement

Business ActivitiesBusiness Activities

Industry SegmentsIndustry Segments

DifferencesDifferences

Risk SelectionRisk Selection Case Reserve AccuracyCase Reserve Accuracy Payment TimingPayment Timing Payment MixPayment Mix Cost ContainmentCost Containment

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Casualty Loss Reserve Seminar 2001 How and When Should You Slice the Cake?

What Matters in Our Data?What Matters in Our Data? Things That Affect:Things That Affect:

Amounts of Loss or Expense Amounts of Loss or Expense

Timing of PaymentsTiming of Payments

Recognition of Loss or Expense Recognition of Loss or Expense

Numbers of ClaimsNumbers of Claims

Average Loss or ExpenseAverage Loss or Expense

Loss or Expense per Exposure UnitLoss or Expense per Exposure Unit

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Casualty Loss Reserve Seminar 2001 How and When Should You Slice the Cake?

What Matters in Our Data?What Matters in Our Data? Things That Affect:Things That Affect:

Characteristics of a Book of BusinessCharacteristics of a Book of Business

Pertinent to Our Analytical TechniquesPertinent to Our Analytical Techniques oror

Features of Specific Interest forFeatures of Specific Interest for

Research, Management or RegulationResearch, Management or Regulation

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

What Should We Pursue?What Should We Pursue?

Is the “Slice” Available?Is the “Slice” Available? How Important Is the “Slice”?How Important Is the “Slice”? What Will the “Slice” Cost?What Will the “Slice” Cost?

TimeTime

MoneyMoney

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Casualty Loss Reserve Seminar 2001How and When Should You Slice the Cake?

Additional Potentially Useful Partitions of Additional Potentially Useful Partitions of Workers Compensation DataWorkers Compensation Data

(Suggested by CLRS Attendees)(Suggested by CLRS Attendees)