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Attend the September 10-11 seminar in New Orleans, presented by Rajesh Sahasrabuddhe, covering model theory, case studies, and reserve analysis for casualty loss in the medical field. Learn techniques for estimating IBNR and true IBNR, and explore frequency and severity models for more accurate reserves. Discover how to forecast losses and analyze insurance coverage effectively. Enhance your understanding of reserving for healthcare institutions and explore future enhancements in liability casualty reserves.
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Reserving for MedicalProfessional Liability Casualty Loss Reserve Seminar September 10-11, 2001 New Orleans, Louisiana Rajesh Sahasrabuddhe,FCAS, MAAA Aon Risk Consultants, Inc.
Presentation of Model • Motivation & Rationale • Theory via Case Study • Mid level discussion with technical references • Questions and Answers Casualty Loss Reserve Seminar September 10-11, 2001
Motivation & Rationale • Zehnwirth / Barnett • “The standard link ratio models carry assumptions not usually satisfied by the data” • Why? • SIR’s on Occurrence Basis / Excess is often on a Claims-Made Basis Casualty Loss Reserve Seminar September 10-11, 2001
Motivation & Rationale • A model easily adaptable to simulation techniques • A Model that works with client data • Many clients do not track triangles; they simply have a loss run Casualty Loss Reserve Seminar September 10-11, 2001
Our Experience with Reserving for HPL • IBNER is generally minimal • Case reserves, in the aggregate, tend to be reasonably adequate • Most Healthcare institutions are conservative by nature • The majority of cost stems from suits • The rest is just noise • Simulation is necessary • To model alternative coverage programs • To determine variability in results Casualty Loss Reserve Seminar September 10-11, 2001
Reserve Analysis • IBNR Liabilities are the sum of the following • Incurred but not enough reported (“IBNER”) • True Incurred but not reported • Estimate Components Separately Casualty Loss Reserve Seminar September 10-11, 2001
Timeline for Case Study Mar 31, 2001 Oct 1, 2001 Sep 30, 2002 Excess Insurance – All events reported Reserve Analysis – All events occurring SIR Loss Forecast – All events occurring Casualty Loss Reserve Seminar September 10-11, 2001
IBNER • IBNER may be estimated using: • Case reserve adequacy statistics for the insurance industry – claims made coverage triangles from A.M. Best • Payment model – large clients • “Last Reserve” statistics • Factors of IBNER / Reported Loss are simulated • Dew and Hedges – Reserving for Excess Layers Casualty Loss Reserve Seminar September 10-11, 2001
True IBNRthe interesting part • True IBNR is estimated using a frequency x severity approach • Why? - This model is the most consistent with the real world! Casualty Loss Reserve Seminar September 10-11, 2001
Our Reserve Analysis: True IBNR Frequency • IBNR Frequency is a direct function of exposure, initial expected ultimate frequency and report lag - i.e. IBNR frequency should be estimated using a B-F approach • Critical Assumption – How long between accident occurrence and claim reporting – Use approach contained in Weissner – “Estimation of the Distribution of Report Lags by the Method of Maximum Likelihood” - Proceedings of the Casualty Actuarial Society (1978) Casualty Loss Reserve Seminar September 10-11, 2001
Report Lag • The lag experience is truncated from above • Similar to a deductible problem (Hogg & Klugman) Casualty Loss Reserve Seminar September 10-11, 2001
Report Lag • Use Maximum Likelihood Techniques (“Loss Models” – KPW) • Use a B-F model Casualty Loss Reserve Seminar September 10-11, 2001
True IBNR Frequency • Use pattern to allocate to claims-made periods • May also apply model to estimate lag between report and closing • Frequency is simulated as a Poisson distribution Casualty Loss Reserve Seminar September 10-11, 2001
True IBNR Severity • Severity Model Closed w/ Indemnity? Indemnity Model Yes No Exp. Only Model Casualty Loss Reserve Seminar September 10-11, 2001
True IBNR Severity • Fit severity models using individual claim data • Myriad of references for estimating claim severity distributions. My personal suggestions are: • Klugman, Panjer, & Wilmot - Loss Models • Keatinge – Modeling Losses with the Mixed Exponential Distribution Casualty Loss Reserve Seminar September 10-11, 2001
Loss Forecast and Excess Insurance Analysis • Through our True IBNR reserve analysis, we have already developed the parameters necessary for: the loss forecast and the excess insurance analysis! • So we simply extend to the prospective year; but separately capture the results Casualty Loss Reserve Seminar September 10-11, 2001
Simulation (Part 1) • Model the entire claims process Casualty Loss Reserve Seminar September 10-11, 2001
Simulation (Part 2) • Model the entire claims process Casualty Loss Reserve Seminar September 10-11, 2001
Result • A model that is both flexible and robust • A model that makes sense – ties with the real world • A model that provides results of interest to clients Casualty Loss Reserve Seminar September 10-11, 2001
Other considerations / future enhancements • “Basic losses” / “Shock Losses” • Model severity as a function of the report lag • Separate severity distributions for lawsuits and claims • Parameter Risk Casualty Loss Reserve Seminar September 10-11, 2001