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Casualty Loss Reserve Reserve Seminar September 23-25, 2002

Casualty Loss Reserve Reserve Seminar September 23-25, 2002. Workers’ Compensation Reserving: How and When Should You Slice the Cake?. Arthur I. Cohen ACAS, MAAA Ernst & Young LLP. Casualty Loss Reserve Seminar 2002 Workers’ Compensation: Slicing the Cake. Dealing with the Imperfect Cake

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Casualty Loss Reserve Reserve Seminar September 23-25, 2002

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  1. Casualty Loss Reserve Reserve SeminarSeptember 23-25, 2002 Workers’ Compensation Reserving: How and When Should You Slice the Cake? Arthur I. Cohen ACAS, MAAA Ernst & Young LLP

  2. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Dealing with the Imperfect Cake (War Stories from the Front Lines) Mudpies Crumbs Unfilled Pie Crusts

  3. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Government Entity • Approximately 40 Dissimilar Agencies (Judiciary, Military, Transportation, etc.) • Size Varies Greatly Between Agencies • Individual Agency Size Varies Greatly Between Years.

  4. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Data Readily Available: • 10 Calendar Years of Aggregate (All Agencies Combined) Incremental Payments by Injury Year, Indemnity v. Medical, for latest 40 Injury Years • 5 Calendar Years of Payments by Agency

  5. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Data Unavailable: • No Case Reserves • No Injury Type Designation (Permanent Total, Permanent Partial, Temporary Total, etc.) • No Paid Data Prior to Latest 10 Calendar Years

  6. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Historic Model: • Aggregate Liability Projection Stable (Decay Model) • Agency Liability Allocation Highly Unstable (Allocation Based on Calendar Year Payments)

  7. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Additional Data Available: • 6 Calendar Years of Agency Incremental Payments by Injury Year, Indemnity v. Medical • Duration Studies Reflecting Claim Characteristics • Nature of Injury • Body Part

  8. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Additional Data Available: • Claimant Demographics -Birthdate -Current Payments -Nature of Injury -Injury Date -Accident Cause - Body Part -Sex -Accident Nature • Anecdotal Information • Agency Operations • Agency Cost Control Initiatives • Alternative Duty Programs

  9. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Issue: How to Segregate Agencies into Homogeneous Groups of Credible Size?

  10. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #1 - Governmental Entity Solution: • Creation of 5 Agencies Groups, Each Consisting of 1 to 23 Individual Agencies • Analysis by Agency, Supplemented by Agency Group Data

  11. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #2 - Monopolistic System State Act: • Insureds • Self-Insureds (Contingent Liability) Federal Black Lung Act (Competitive) • Insureds

  12. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #2 - Monopolistic System • Data by Injury Type Fatal and Permanent Total Disability • Historic Claim Counts • Accurate Case Reserves Permanent Partial, Temporary Total, Medical • Historic Paid Losses • Case Reserves Do Not Reflect Additional Awards

  13. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #2 - Monopolistic System Major Issue: Change • Legislative • Judicial • Claims Management

  14. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake. Scenario #2 - Monopolistic System Impact of Change by Injury Type Varies Regarding: • Frequency • Weekly Benefit • Payment Inception • Duration

  15. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake Scenario #2 – Monopolistic System Obvious Slices State Act v. Federal Insured v. Self-Insured Injury Type Accident Period (Applicable Benefit Structure, etc.)

  16. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake Scenario #2 – Monopolistic System Additional Considerations: • Inconsistent Application of Legislation and Judicial Decisions by Claims Personnel Regarding: • Escalation • Duration • Fee Schedules • etc. • Inconsistent Accident Year Coding: • Injury Date • Onset Date • Award Date

  17. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake Scenario #2 – Monopolistic System Additional Considerations: • Loss of Integrity of Insured v. Self-Insured Allocation • Leasing Companies • Accident Year Issues

  18. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake Scenario #2 – Monopolistic System Issue: Slices are not Clean

  19. Casualty Loss Reserve Seminar 2002Workers’ Compensation: Slicing the Cake Scenario #2 – Monopolistic System Solution: • Use “obvious” data slices. • Give Full Consideration to Data Issue, Using Conservatism in the Face of the Unknown

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