The Workers Compensation Tails

By Frank Schmid

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Abstract

There is a dearth of public knowledge about the development patterns of mature workers compensation claims at the level of the aggregate loss triangle; this is because there are only a few loss triangles available for research that span the full lifetime of the cohort of claimants. Analysis of two very large triangles provided by SCF Arizona (indemnity) and SAIF Oregon (medical component of permanent disability claims) shows how the consumption of indemnity and medical services of a given cohort of claimants develops as this cohort ages and gradually dies off over the decades. For indemnity triangles, the decay rate of consumption correlates with the rate of mortality; for medical triangles, this rate of decay assumes a stationary, negative value after about 20 development years.

© Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved.

Keywords: Workers compensation, loss development, Markov chain Monte Carlo Simulation, reserving

Citation

Schmid, Frank, "The Workers Compensation Tails," Variance 6:1, 2012, pp. 48-77.

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Mission Statement

Variance (ISSN 1940-6452) is a peer-reviewed journal published by the Casualty Actuarial Society to disseminate work of interest to casualty actuaries worldwide. The focus of Variance is original practical and theoretical research in casualty actuarial science. Significant survey or similar articles are also considered for publication. Membership in the Casualty Actuarial Society is not a prerequisite for submitting papers to the journal and submissions by non-CAS members is encouraged.