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

ESTIMATING THE WORKERS COMPENSATION TAIL 589reality is that the historical PLDFs in all three Western statesoften increase for later DYs. The shortfalls produced by inversepower fits are smaller because the ratios of the projected factors(less 1.0) rise asymptotically to 1.0, while the decay ratios forthe exponential curve fits remain constant at a value well below1.0.In addressing the problem of extrapolating paid developmentwhen the most mature PLDFs are increasing, some insurers orself-insureds may have data for longer periods of time than thelatest 20 years. However, because of system changes or acquisitions,cumulative loss development data for old accident years arefrequently lacking. In these cases incremental calendaryeardatafor old accident years may be available because payments are stillbeing made on the old open claims. Section 2 and Appendix Apresent the Mueller Incremental Tail method for making full useof the incremental data to calculate empirical tail factors. Wehave used this method to derive empirically based PLDFs outto 65 years of development based on SAIF’s actual MPD lossexperience.The PLDF model is not designed to reasonably predict thebehavior of lifetime payments during later DYs. An alternativeapproach using the incremental paid to prior open claim methodis well suited to this purpose. It separately treats changes in incrementalseverities (due to annual rates of medical cost escalation)and the slow decline in the number of open claims (due to mortality).A version of it using a recent mortality is presented inSection 3. It will be referred to as the static mortality model.When the rate of medical cost escalation clearly exceeds thepercentage of remaining claimants who die during a given DY,then incremental MPD payments will increase from one DY tothe next. Such increases should be quite common during DYs 15through 40.In Figure 1.2, the PLDFs indicated by the static mortalitymodel are compared with SAIF’s empirical PLDFs. The static