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

ESTIMATING THE WORKERS COMPENSATION TAIL 659TABLE C.1Guide to Location of Description and Display of KeySteps of MethodSection 3 ofStep Appendix C Main Text(1) Select representative historical claim Section C.5reporting pattern(2) Select representative historical claim Section C.5closing pattern(3) Derive historical open count pattern by Section C.5subtracting (2) from (1)(4) Derive projections of number of claims Section C.2 Table 3.4closed due to death(5) Derive assumptions regarding percentage Section C.5 Table 3.4of claims closed for other reasons(6) Synchronize open count estimates of Section C.5 Table 3.4historical experience and mortality model(7) Select appropriate medical inflationSection C.4assumption(8) Trend historical incremental paid to prior Section C.3open claim averages to current level(9) Select representative paid severities Section C.3(10) Trend paid severities to year of payment Section C.3 Table 3.2(11) Estimate incremental payments as theproduct of trended paid severities andprojections of the number of prior openclaimsTable 3.2with the actual probabilities of a claim remaining open throughouteach given development year. For each development yearunder 10, the probability of a claim remaining open during agiven development year was substantially less than the survivalprobability, since most (or many) claims will close for reasonsother than death of the claimant. However, these two sets of probabilitiesconverge for increasing development years until they arevirtually identical for development years 20 and higher.Mortality rates were used to derive a claims closure pattern(due to death) by development year in the following way. A two-