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  #1  
Old 12-08-2014, 12:50 PM
SelfOrgCrit SelfOrgCrit is offline
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Default Health Reserves: How do you treat "large claims" for IBNR?

I'm new to the reserving department of a health insurance company. I don't have previous health reserving experience, so I'm wondering if folks can share what tools/techniques/methods/advice they have for treating claims in the lags that are abnormally large.

Currently, our company leaves the large claims in the lags while calculating a base level of IBNR, and accrues separately an additional amount for large claims that are over a certain threshold (e.g., $100,000). The downside to this, from my perspective, is that the large claims are "noise" in the lags that are used to calculate the base level of IBNR.

Is this a common approach?

Thanks in advance for the advice.
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Old 12-08-2014, 01:11 PM
Dr T Non-Fan Dr T Non-Fan is offline
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How large are they relative to the size of a single cell in the triangle, and of the total incurred claims paid thus far?

This approach implies that large claims happen, and that other large claims will happen in about the same frequency (though the timing is not so precise).
I.e., some month after that large claim's incurred month might get a large claim. Unknown is which incurred month it will be, nor how much it will be for.
If you're using the IBNR or the completion factors or the estimated ultimate incurred claims of each month for some other project, then yeah, maybe you shouldn't.
But as an estimate of the current IBNR, not so bad.

The alternatives are much more complex and don't, IMO, add much accuracy.
Here's an alternative approach:
1. Get your lag triangle.
2. Define "large claims" and remove them from the lag triangle.
3. Determine completion factors of no-large-claims lag triangle.
4. Determine no-large-claims IBNR.
5. Estimate large claims for each month. (Yeah, you figure out how to do this, and make sure it's an actuarially sound method. Because, auditors.)
6. Add unpaid large claims to IBNR.
7. Spread unpaid large claims somehow across the lag months.
8. Update completion factors, in case someone wants to use them for their projects.

Repeat every month.
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Old 12-16-2014, 02:56 PM
SelfOrgCrit SelfOrgCrit is offline
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Great, thanks for the insight!
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Old 03-19-2018, 10:08 PM
psp-fifa-fan psp-fifa-fan is offline
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Hi, I'm new to reserves and I have a question.

For standard practice, do we usually calculate the IBNR with large claims removed (i.e. step #4 from Dr T Non-Fan), let's call it $X; then estimate unpaid large claims, let's call it $Y; then include $X and $Y in an IBNR letter?

Thanks,
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Old 03-20-2018, 11:47 AM
Dr T Non-Fan Dr T Non-Fan is offline
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Disclaimer: I do not know what "an IBNR letter" is.

But, sure, add the two. That would be total IBNR, after all.

You'll want to keep track of your X's and Y's and compare them to what really happened. If you're off by a lot every month, might want to think about improving the process.
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Old 03-20-2018, 11:32 PM
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It's the deliverable in consulting.

Yes, remove large claims in developing lag factors. Many of my clients had stop-loss and it was a no-brainer... you didn't need to add them back in.

In insurance we usually had good insight into large claims coming down. We had a central group that took nurse reports and cost estimates in. Hard to not know about a $500,000 claimant without some kind of preauth, ongoing condition, etc.
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