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

606 ESTIMATING THE WORKERS COMPENSATION TAILTable 3.2 presents a sample application of this method in estimatingincremental payments for accident year 2002, assuming5,000 ultimate PD claims and a series of additional assumptionsderived from SAIF’s historical loss experience (as described inAppendix B).The following observations can be made about the phenomenaexhibited in Table 3.2:² Incremental payments consistently increase for every DY fromthe 11th through the 40th, a counterintuitive pattern.² The PLDFs consistently increase for every DY from the 11ththrough the 31st.² This method produces projected PLDFs out to 85 years ofdevelopment. Such development is possible because a workercould be injured at age 16 and live to be over 100.² Incremental payments do not decrease below the local minimumof $1.7 million during the 11th year of development untilthe 65th year of development.To understand why incremental payments, as well as PLDFs,tend to increase during many “mature” years of development, itis helpful to examine how the two key components of the incrementalpaid to prior open claim method change over successivedevelopment years.This section illustrates how a static mortality model hasbeen incorporated into the incremental paid to prior open claimmethod. It describes the main framework of the method, whileAppendix C covers the derivation of various assumptions thatinvolve a complex analysis.As is evident from Column (4) in Table 3.3, it was assumedthat incremental payments per prior open claim would increaseby 9% per year for every DY beyond the seventh, except forthe 11th DY. This was based on an analysis of SAIF’s historical