Timothy L. Wisecarver FCAS, FCA, MAAA September 8, 2003 Casualty Loss Reserve Seminar 2003 Session Number 4 - Workers’ Compensation Reserving – How and When Should You Slice the Cake? Timothy L. Wisecarver FCAS, FCA, MAAA September 8, 2003

WHY DO WE SLICE THE DATA CAKE? Emergence Patterns Settlement Patterns Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? WHY DO WE SLICE THE DATA CAKE? Emergence Patterns Settlement Patterns Development Patterns Loss Frequency Loss Severity Slicing Can Find and Use Differences in Data

Factors Affecting Data Organization Decisions Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Factors Affecting Data Organization Decisions Availability Credibility Homogeneity - Within a Slice - Across Slices

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? IN THIS PRESENTATION: Many Possible Slices are Shown Many Other Possible Slices are Not Shown Some Important Differences are Noted Other Significant Differences are Not Noted “Factors Affecting Data Organization Decisions” are Assumed to Apply to All Slices

Suggested “Slice” Indemnity vs. Medical Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Indemnity vs. Medical Differences Payment Computation Inflation Payment Timing Claim Mix Cost Containment Population Being Paid

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Benefits vs. Loss Adjustment Differences Payment Computation Inflation Payment Timing Population Being Paid

Suggested “Slice” Differences Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Indemnity vs. Medical-Only Claims (Medical Losses) Differences Payment Timing Cost Containment Medical Service Mix Injury Mix

Other Indemnity Losses Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Vocational Rehabilitation vs. Other Indemnity Losses Differences Payment Computation Inflation Payment Timing Cost Containment Administration

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Branch Office or Region Differences Administration Claims Personnel Industry Mix Injury Mix Economic Factors

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Case Reserver(s) Differences Accuracy Consistency Work Environment Caseloads Training Backlogs Case Mix

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Insurance Company Differences Book of Business Pricing Programs Expertise Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Self Insured Entity Individually Self Insured Member of Group Plan Differences Cost Containment Industry Injury Mix Administration Available Information Economic Factors

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Cost Containment PPO CCO Fee Schedule Market Differences Prices Inflation Payment Timing Injury Mix Loss Adjustment Risk Selection Service Complement

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Producer Differences Risk Selection Pricing Programs Industry Mix Injury Mix Service Complement

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Reinsurance Arrangements - Treaty - Facultative - Ceded - Assumed Differences Risk Selection Administration Claim Mix Cost Containment Coverage Terms

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Self-Insured Administration Self TPA Differences Expertise Cost Containment Data Retrieving Ability Data Reporting Ability Motivation, Incentives Case Reserve Accuracy

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Market Segment Voluntary Direct Assignment Servicing Carrier Differences Risk Selection Expertise Industry Mix Injury Mix Pricing Programs Motivation, Incentives Cost Containment

(Claim, Accident, Aggregate) Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Deductibles Large Small None (Claim, Accident, Aggregate) Differences Inflation Payment Timing Case Reserve Accuracy Risk Selection Motivation, Incentives Cost Containment

State Act (Which One(s)) Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Jurisdiction State Act (Which One(s)) USL&HW FELA Differences Benefit Levels Payment Computation Inflation Payment Timing Administration Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Pricing Program(s) Guaranteed Cost Loss Sensitive Differences Risk Selection Cost Containment Market Conditions Motivation, Incentives

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Size of Loss Catastrophes Large Losses Other Losses Differences Case Reserve Accuracy Inflation Payment Timing Claim Mix Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Layer of Loss Differences Inflation Case Reserve Accuracy Payment Timing Claim Mix Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Claim Status Open vs. Closed Differences Case Reserve Accuracy Payment Timing Claim Mix Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Traumatic Injury vs. Occupational Disease Differences Medical Service Mix Case Reserve Accuracy Payment Timing Claim Mix Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Type of Injury Death Permanent/Temporary Partial/Total Medical Only Differences Accuracy of Reserves Payment Timing Payment Mix Cost Containment

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Suggested “Slice” Special Accounts Size Management Business Activities Industry Segments Differences Risk Selection Case Reserve Accuracy Payment Timing Payment Mix Cost Containment

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data?

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Amounts of Loss or Expense

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Amounts of Loss or Expense Timing of Payments

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Amounts of Loss or Expense Timing of Payments Recognition of Loss or Expense

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Amounts of Loss or Expense Timing of Payments Recognition of Loss or Expense Numbers of Claims

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Amounts of Loss or Expense Timing of Payments Recognition of Loss or Expense Numbers of Claims Average Loss or Expense

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Amounts of Loss or Expense Timing of Payments Recognition of Loss or Expense Numbers of Claims Average Loss or Expense Loss or Expense per Exposure Unit

What Matters in Our Data? Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Matters in Our Data? Things That Affect: Characteristics of a Book of Business Pertinent to Our Analytical Techniques or Features of Specific Interest for Research, Management or Regulation

Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? What Should We Pursue? Is the “Slice” Available? How Important Is the “Slice”? What Will the “Slice” Cost? Time Money

(Suggested by CLRS Attendees) Casualty Loss Reserve Seminar 2003 How and When Should You Slice the Cake? Additional Potentially Useful Partitions of Workers Compensation Data (Suggested by CLRS Attendees)