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Old 09-25-2010, 05:33 PM
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Default Pricing a WC LPT with claims 25+ years old

I have to come up with an estimate of the cost of an LPT for policy years 1970-1985. The client has been self insuring with variable self-insured retentions (SIR) over the period. Due to the age of the policies and the technology at the time, I don't have data aside from the open claims and the SIR. How do you price such account?

I have paid & incurred losses by medical, lost time, and ALAE.
Approximately 20% of the claims are already above the SIR.
Approximately 10% of the claims are active cases in litigation.
Most of the claims are lifetime medical.
The reinsurer above the SIR has AM Best rating A++

I'm thinking I make up some IBNR load, assume X% goes to the reinsurer. Build up an assumed payout pattern based on industry payout patterns to discount losses. I have little to no support for any of the numbers above. Add some kind of expense load and reinsurance risk load.

Are there taxes that go with an LPT? What kind of expenses loads do insurers usually demand?
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Old 09-25-2010, 06:11 PM
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How many claims?

Unless they are in the thousands, I might argue that the best approach here is a bottom up estimate. Get the claims handlers/TPA to do a thorough review of every claim and update the case reviews to expected cost. Have them put a life expectancy on each claim, then add inflation assumptions to come up with any additional IBNR. Throw in a cushion for medical deterioration (our claims department has a 'worse case' estimate that we use on cases deemed more likely to deteriorate to determine this deterioration IBNR).
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Old 09-26-2010, 01:57 PM
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It's less than 100 open claims and due to the class of business this is, there is absolutely no additional information available. We can't get accident descriptions, talk to the TPA, age of claimant, etc.
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Old 09-26-2010, 02:36 PM
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It's less than 100 open claims and due to the class of business this is, there is absolutely no additional information available. We can't get accident descriptions, talk to the TPA, age of claimant, etc.
That makes absolutely no sense. Somebody has to have information re age and sex of the claimant, medical condition and date of accident. Otherwise who is your client cutting checks to (and why are they paying money to completely unkown individuals).

I'd suggest getting that information and walking down the hall to the life guys and getting them to price those payouts.

As for those claims that are in litigation someone's got to have a lot of information - otherwise what exactly are they litigating?

I suspect the problem isn't that the data isn't available but rather that it'll be a serious pain in the backside for them to dig it out of cartons in a warehouse somewhere.
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Old 09-26-2010, 05:53 PM
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It's less than 100 open claims and due to the class of business this is, there is absolutely no additional information available. We can't get accident descriptions, talk to the TPA, age of claimant, etc.
F that. There is no way you can properly do your job IMO with that little data. A book of that size is hugely volatile. It could cost $10M, it could cost $80M depending on the type of injuries and age of the claimants and their medical conditions and life expectancy. If they want a price for a LPT, they can cough up the info or they can keep the risk themselves.
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Old 09-27-2010, 03:31 AM
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This is the way public entities operate in this particular state. The problem's not that the insured's lazy, but their hands are tied by law. My job's to come up with my best estimate given all of the information that is already public. If they like my estimate, it goes out to bid where there will be a Q&A phase where additional information may or may not become available.
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Old 09-27-2010, 03:35 AM
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Should probably add that I work at an agency. I'm the actuarial department, the claims department, etc. Anything that has numbers is me. The other guys I work with basically do marketing.
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Old 09-27-2010, 09:47 AM
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I'm not sure how you can even come up with an estimate with that little amount of data, without putting a range around it so large that makes the estimate useless.
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Old 09-27-2010, 11:19 AM
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If I understand correctly, your job is not to actually price this, but to get some idea of whether the insured should bother trying to find an LPT, right?

If there are less than 100 claims and some are already over the SIR, you can put your arms around it: On an undiscounted basis, minimum is the current case reserves plus an IBNR provision for claims under the SIR from an ibnr:case method using generic WC development for the appropriate State. Be sure not to include case reserves over the SIR. Undiscounted maximum is case reserves plus enough IBNR to push everything to the SIR. Rough payout pattern for claims this old would be to assume even increments for 10 years.

Given that the market is a bit on the soft side and companies are often looking for cash, expect to see quotes toward the lower end of that range.
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Old 09-27-2010, 11:40 AM
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If I understand correctly, your job is not to actually price this, but to get some idea of whether the insured should bother trying to find an LPT, right?

If there are less than 100 claims and some are already over the SIR, you can put your arms around it: On an undiscounted basis, minimum is the current case reserves plus an IBNR provision for claims under the SIR from an ibnr:case method using generic WC development for the appropriate State. Be sure not to include case reserves over the SIR. Undiscounted maximum is case reserves plus enough IBNR to push everything to the SIR. Rough payout pattern for claims this old would be to assume even increments for 10 years.

Given that the market is a bit on the soft side and companies are often looking for cash, expect to see quotes toward the lower end of that range.
10 years? More like 30-40. And there is no way the payment pattern is close to even, there is a severe spike in payments as claimant age to around 60-70, as spouses decide they can't take care of the people at home anymore and they get moved into homes/hospitals/etc.
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