PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

ESTIMATING THE WORKERS COMPENSATION TAIL 585FIGURE 1.1Payout Patterns–Lifetime versus Short-Term MPDPayments for a Single Accident Yeartendency of later PLDFs to refuse to decline could easily be seenas an anomaly, when in reality it is to be expected.The payout pattern for lifetime payments does not end at DY50. A severely injured worker in his or her late teens or early 20scould require work-related medical payments for up to 90 yearsafter the accident. As a result, the total area under the lifetimepayout pattern (i.e., ultimate payments) can easily be three tofour times that under the short-term payout pattern.Often the reserving actuary will have paid losses only for thefirst 15 (or fewer) DYs. Consequently, the only paid loss experienceavailable consists primarily of short-term payments, andyet the bulk of the loss reserve will be due to lifetime payments.Since the two types of payments are radically different, the riskof underestimating the loss reserve is significant. Frequently theactuary will rely to some degree on the ratio of incurred loss topaid loss for the most mature accident years (AYs) as a guide