Overcoming Claims Inadequacies: A Mortality-Based Approach to Reserving for Old Workers’ Compensation Claims

April 2011
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Overcoming Claims Inadequacies: A Mortality-Based Approach to Reserving for Old Workers’ Compensation Claims

At a glance

While several recent industry studies have found that workers' compensation reserves are adequate or perhaps only slightly deficient overall, adverse development in older accident years is a continuing problem.

While several recent industry studies have found that workers' compensation reserves are adequate or perhaps only slightly deficient overall, adverse development in older accident years is a continuing problem. Traditionally, the actuarial methods for estimating the future cost of workers’ compensation claims related to injuries or occupational disease that occurred many years ago have not differed from those used for more recent claims. Judgmental modifications in traditional loss development approaches and the use of advanced modelling techniques for projecting these old claims (such as curve fitting) have not corrected the under-reserving problem. As a result, reviewing individual claims with a mortality-based approach is gaining popularity because doing so may produce more adequate liability estimates than traditional casualty methods.