Exam 5 Reserving: Information gathering Flashcards
Process of estimating unpaid claims
- Explore the data to identify key characteristics and possible anomalies. Balance data to other verified sources 2. Apply techniques for estimating unpaid claims 3. Evaluate the conflicting results of the various methods used 4. Monitoring projections of claim development over subsequent calendar periods
External data sources in US
ISO, NCCI, RAA, SFAA, AM Best, NAIC
External data sources in Canada
Best, GISA, IBC, RRC, MSA
When is external information particularly valuable
When selecting tail development factors, trend rates, and expected claim ratios (i.e. expected loss ratios)
Why IAA believes in entity-specific data over external data
Risk that external data maybe misleading or irrelevant due to differences relating to: insurance products, case outstanding and settlement practices, insurers’ operations, coding, geographic areas, and mix of business and product types
What should actuaries focus on when separating data into groups for an aalysis of unpaid claims
- Consistency of the coverage triggered by the claims in the group (which generally subject to similar laws,policy terms, claim handling)
- Volume of claims
- Length of time to report the claim
- Ability to develop an appropriate case outstanding
- Length of time to settle
- Likelihood of claim to reopen
- Average settlement value (i.e., severity)
What’s the goal of actuary in organizing data
Divide data into sufficiently homogeneous groupings without compromisingt he credibility of the data
credibility
predictive value given to a group of data
Types of data mostly used
- Incremental paid claims
- Cumulative paid claims
- Paid claims on closed claims
- Paid claims on open claims
- Case outstanding
- Reported claims
Types of data mostly used cont’d
- Incremental reported claims
- Reported claim counts
- Claim counts on closed with payment
- Claim count on closed with no payment
- Open claim counts
- Reopened claim counts
claim
claims + ALAE
DCC
defense and cost containment,
A&O
adjusting and other, include all claim adjusters costs
How to deal with unusually large claims
- exclude large claims from initial projection
- At the end of the unpaid claims analysis, add a case specific projection for the reported portion of large claims and a smoothed provision for the IBNR portion of large claims
What to consider when establishing the large claim threshold
- Number of claim over the threshold each year
- Size of claim relative to policy limits
- Size of claim relative to reinsurance limits
- Credibility of internal data regarding large claims
- Availability if relevant external data
How is deductible applied to third-party coverage
Deductible is after claim payment - insurer issues a payment to the injured party and then seeks recovery of the deductible from the insured
salvage
any amount that the insurer is able to collect from the sale of damaged property
subrogation
an insurer’s right to recover the amount of claim payment to a covered insured from a third-party responsible for the injury or damage
Three treatments of ALAE in excess of loss reinsurance contracts
- Included with the claim amount in determining excess of loss coverage (most common)
- Not included in the coverage
- Included on a pro rata basis: excess portion of claim to the total claim amount determines coverage for ALAE
Types of exposures
earned premium, written premium, policies in force, policy limits by region(early estimation of unpaid claims related to a natural catastrophe), number of vehicles insured (Personal automobile), and payroll (workers compensation)
Two ways to derive on-level premiums
- Re-rating of historical exposures at current rates
- Use a summary of rate level changes over the experience period and adjust the premiums in the aggregate for historical rate changes
Examples of exposure for self-insurers: workers compensation
payroll
Examples of exposure for self-insurers: automobile liability
Number of vehicles or miles driven
Examples of exposure for self-insurers: General liability for public entities
Population or operating expenditures
Examples of exposure for self-insurers: General liability for corporations
Sales or square footage
Examples of exposure for self-insurers: Hospital professional liability
Average occupied beds and outpatient visits
Examples of exposure for self-insurers: property
property values
Examples of exposure for self-insurers: crime
number of employees
provision
unpaid claim estimates
Data verification concerns
- Consistency with financial statement data
- consistency with prior data
- Data reasonableness
- Data definitions
Key dates for the organization of the claim data
- Policy effective dates 2. Accident date 3. Report date 4. Accounting date 5. Valuation date
Policy effective dates
The period for which the policy triggered by the claim was effective
Policy year
the year that the policy became effective
Policy date for reinsurer
Underwriting date (or year)
notification date
the date that the insurer is put on notice that an event occurred that may result in a claim
sequence of notification, report and record date
notification, report, record
accounting date
date that defines the group of claims for which liability may exist, namely all incurred claim incurred on or before the accounting date
valuation date
date through which transactions are included in the database used in the evaluation of the liability, regardless of when the actuary performs the analysis
calendar year data
transaction data. Calendar year 2008 paid claim s refer to the claim payments made by the insurer between Jan 1, 2008 and Dec 31, 2008
Calendar year earned premium
Written premium + Beginning Unearned Premium Reserve - Ending Unearned Premium Reserve
Advantage of calendar year data
- no future development, the value remains fixed and does not change as time goes by
- It is readily available
Disadvantage of calendar year data
Inability to address the critical issue of development
Accident year data
claims grouped according to the data of occurence
policy year data
year in which the policy was written
Underwriting year data
frequently used by reinsurers, claims data grouped by the year in which the reinsurance policy became effective
policy provisions
e.g. policy limits and deductibles
development triangle
a table that shows changes in the value of various cohorts over time
Analysis of triangles
Rows corresponding to the experienced period and columns representing the maturity maturity ages
How will development factors change as the retention increases?
Increase
When the development technique is not useful?
Changes to the insurer’s operations, environmental changes which changes the assumption that the past will be predictive of the future
Large volume of historical claims might distort the data
Examples of changes to the insurer’s operations
- New claims processing systems
- Revisions to tabular formulae for case outstanding
- Changes in claims management philosophy
- Policyholder deductibles
- Insurer’s reinsurance limits
environmental changes
e.g. when a major tort reform occurs (such as a cap on claim settlements or a restriction in the statute of limitations)
Is development techniques used when an insurer entering a new line of business of a new territory and for small insurers
Yes. though they rely more on benchmark patterns (e.g. comparable lines of business or available industry data) to select claim development factors
Should actuaries still apply the development techniques in highly leveraged cumulative claim development factors
No. Actuaries would seek alternative techniques for estimating unpaid claims
