Understanding MIRA II, BWC’s Enhanced Claims Reserving System

1. Understanding MIRA II, BWC’s Enhanced Claims Reserving System Shane Blair

2. Overview of Discussion • A historical overview of the BWC reserving system • The purpose of claim reserves and their use in setting rates • A preview of the new reserving system, and why it’s better • Why we need to implement the reserving system developed by Fair Isaac

3. Claim Reserve Estimate of the future cost of a claim at a specific point in time

4. BWC’s Reserving Systems • Tabular reserves until 2002 • Average cost of a claim in fitted category • Based primarily on last compensation paid • MIRA I – 2002 to 2007 • Automated reserving system that uses advanced statistical analysis to predict future cost/liability of a claim

5. Why did we change to an automated reserving system? • The need for more accurate estimates of future value • The need for more equitable distribution of costs to employers

6. MIRA I: • Uses individual claim characteristics with associated cost patterns; • Uses reserving patterns based on BWC specific claim data; • Allows for more accurate premium rates; • Brings stability to premium rates; • Improves claim management by recognizing severity of claims early.

7. Why MIRA II? • Uses recent claim history and regularly updates it • Modeling can react to changes to payments and cost patterns • Modeling distinguishes between inconsequential claim data and true cost driver • Modeling learns complex relationships in the claim data • No special logic on new claims as used in MIRA I • Reserves on individual claim

8. Why MIRA II? • More historical claim data • Uses financial/transactional claim payment data • Emphasis on more recent historical claim data • More accurate claim data

9. Why MIRA II? • Focus on transparency • Established mapping and logic more closely related to BWC specific claims, rules, statutes and processes • Provide customers with weekly reserves

10. Injury Type Mapping It’s the initial process for setting a reserve on a claim based on a set of claim data and conditions that identifies the claim severity or exposure. The mapping determines the ultimate benefit status the claim will reach as of that prediction date. The injury types are: Type 1 – Death; Type 2 - Permanent total disability (PTD); Type 5 - Temporary total disability (TTD); Type 6 - Medical only; Type 9 - Permanent partial.

11. Prediction Control (start-stop) Logic A set of rules, conditions or criteria that determines when the system sets a reserve for a claim or stops setting a reserve

12. Modeling Process Reflects the historical costs of similar claims filed in Ohio

13. MIRA II controls ( ) stop logic Type 9 PPD How MIRA II Sets A Reserve MIRA II MIRA II sub severity models classification 30 days have passed since last comp paid date (V3 to date) • TTD reserve • Living maintenance • PPD reserve • TPD / Wage loss • Medical Type 1 Death CLAIM 30 days since C-92 indicator status is “A” and no %PP payment is made, and no subsequent %PP payment is made Total comp paid = 0, and more than 180 days since the filing date have elapsed

14. $1,000,000 $1,000,000 $100,000 $100,000 Final total paid Final total paid $10,000 $10,000 $1,000 $1,000 $100 $100 $100 $1,000 $10,000 $100,000 $1,000,000 $100 $1,000 $10,000 $100,000 $1,000,000 MIRA II prediction MIRA I prediction Claim-level Accuracy

15. Aggregate Accuracy

16. MIRA II Web Service Offerings • Individual claim costs (Existing) • Claim costs by policy (Existing) • Claim data information (New) • Claim reserve history report (New) • Claim payment transaction report (New) • Claim reserve change report (New) • Claim demographic screen (New) • MIRA II annual statistics (New)

17. Individual Claim Costs

18. Claim Costs

19. Claim Data Information

20. Claim Data Information

21. Claim Reserve History

22. Report data(sections): Claim info Policy info Payment info Injury info Dependent info Medical payments Indemnity payments Medical payment Trends Reserve adjustment (suppression) Total cost of claim -paid = reserve Claim Inquiry Report

23. Claim Payment Transaction Report

24. Claim Payment Transaction Report

25. Claim Payment Transaction Report XX-XXXXXX XX-XXXXXX XX-XXXXXX XX-XXXXXX XX-XXXXXX XX-XXXXXX XX-XXXXXX XX-XXXXXX XX-XXXXXX

26. Claim Payment Transaction Report s – policy –pg2

27. Claim Reserve Change Report

28. Claim Reserve Change Report

29. Claim Reserve History Report Still under construction

30. Claim Demographic

31. MIRA II Annual Statistics

32. Summary • Accuracy • Use new historical claim data that is regularly updated • Clarity • Statistical Data on Average Claim Reserve • Transparency • Listing of Claim Data used in reserve prediction

33. Question-Answer