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

642 ESTIMATING THE WORKERS COMPENSATION TAILclaimants may have been quite young when injured, and becausethe total expected future payment for workers injured ata young age is dramatically higher than for those injured at anolder age. An appreciation for this can be gained by reviewingeither Columns (B) or (C) of Table 8.2. For example, the totalexpected future payout for a female who is 20 at the accidentdate is $16.7 million, while it is only $3.0 million if she is 40.The Markov chain method presented in this section is basedon the common assumption that the current level incrementalseverities of each claimant remain constant regardless of the ageof the claimant during each future year. Clearly, if the tendencyof incremental medical severities to increase with age were incorporatedinto this method, future medical payments for eachtrial of the simulation would be higher.10. CONCLUDING REMARKSIn this paper we have seen that common actuarial methodswill tend to underestimate the true MPD loss reserve. This isalso the case for typical methods of estimating MPD reservesat higher confidence levels based on commonly used size-oflossdistributions. The need to develop and apply new methodsthat directly reflect the characteristics of MPD payments issubstantial.