- TIA EXAM 5 - FRIEDLAND CH 17.txt

Card Set Information

Author:
jenielwu
ID:
135148
Filename:
- TIA EXAM 5 - FRIEDLAND CH 17.txt
Updated:
2012-02-14 02:13:15
Tags:
tia
Folders:

Description:
exam 5 ratemaking
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user jenielwu on FreezingBlue Flashcards. What would you like to do?


  1. The fundamental assumptions of the Dollar-based method
    • ULAE expenditures track with loss dollars
    • Implies that the general timing of ULAE costs follows timing of the reporting or payment of loss dollars
  2. The fundamental assumptions of the Count-based method
    • Same kind of transaction costs the same amount of ULAE
    • Regardless of claim size
    • Longer the claim stays open, the more it costs due to parameter to reflect cost of ongoing management and maintenance of claims
  3. The key assumptions of the Classical or Traditional Technique (Paid-to-Paid Ratio Method)
    • 1. Specifi c company's ULAE-to-claim relationship have achieved a steady state
    • *Provides reasonable approximation of relationship of ultimate ULAE to ultimate claims

    2. Relative volume and cost of future claims-management activity on unreported and open reported claims will be proportional to IBNR and case outstanding dollars

    3. Additional assumption: 50% of the ULAE occurs when claim is reported, 50% when closed
  4. Mechanics of the Classical Technique (4 steps)
    • 1. Calculate historical CY paid ULAE to CY paid claims
    • 2. Review historical paid ULAE to paid claims ratios for trends or patterns
    • 3. Select ratio of ULAE-to-claims for future claims payments
    • 4. Apply 50% of ratio to case outstanding and 100% to IBNR= Ratio * (50% * Case OS + IBNR)
  5. Challenges of the Classical Technique
    1. "Closing" and "paying" a claim may not mean the same thing

    • 2. Defi nition of IBNR
    • In practice IBNR typically includes both IBNYR and IBNER
    • Correct application would be to apply full ULAE-to-loss ratio to IBNYR and half the ratio to the sum of Case reserves and IBNER
  6. When the Classical Technique works
    • Very short-tailed, stable lines of business
    • Low cost inflation
  7. When the Classical Technique may not work
    • Long-tail lines of business
    • Times of changing inflationary forces - past or expected future
    • Rapid change in volume
    • When 50/50 assumption is not appropriate
  8. The key assumptions to Kittel's re nement to the Classical Method
    • ULAE incurred with the reporting of claims, with or without payment
    • ULAE payments during a CY are related to both reporting and payment of claims
    • Relative volume and cost of future claims-management activity on unreported and open reported claims will be proportional to IBNR and case outstanding dollars
    • 50% of the ULAE occurs when claim is reported, 50% when closed
  9. Mechanics of Kittel Re nement
    • Calculate historical CY paid ULAE to average of CY paid and CY incurred claims
    • Review historical ratios for trends or patterns
    • Select ratio of ULAE-to-claims for future claims payments
    • Apply 50% of ratio to case outstanding and 100% to IBNR= Ratio * (50% * Case OS + IBNR)
  10. When the Kittle Re nement works
    Can handle growing insurer situation that classical technique cannot
  11. When the Kittle Re nement may not work
    • Maintains 50/50 assumption: Doesn't allow particular allocation of ULAE to opening, maintaining, and closing
    • Times of changing inflationary forces - past or expected future
  12. Conger and Nolibos Method - Generalized Kittel Approach defi ned a procedure to estimate ULAE
    • Recognize an insurer's rapid growth
    • Be consistent with patterns of the insurer's ULAE over a claim's life
    • Reproduce key concepts behind Johnson method
    • Use commonly available and reliable aggregate payment and unpaid claims data
    • Develop an extension to the Kittel re nement which could allow for alternatives to the traditional 50/50 assumption
  13. Define Claims Basis
    weighted average of the ultimate cost of claims reported during the period, the ultimate cost of claims closed during the period, and losses paid during the period
  14. Assumptions of Generalized Kittel Approach
    • Generalized method assumes expenditure of ULAE resourcesis proportional to dollars of claims being handled
    • ULAE amounts spent opening claims are proportional to the ultimate cost of claims being reported
    • ULAE amounts spent maintaining claims are proportional to payments made
    • ULAE amounts spent closing claims are proportional to the ultimate cost of claims being closed
  15. Mechanics of Generalized Kittel Approach
    • Select an overall ratio of ULAE to loss (W*)
    • ULAE payments are typically measured and reported ona calendar year basis
    • U1, U2, and U3 are estimated or selected{ R, P, and C determined from actuarial claims reserveanalysis
    • Compute W = M / B by calendar year then select overall ratio W*
    • Can estimate ultimate ULAE (U) for a group of accident years as U = W* x L
    • Where L = independently estimated ultimate claims for group of accident years
  16. Practical Difficulties with the Generalized Approach
    • Generalized methodology assumes claims adjusting activities associated w/ reopening and reclosing a claim have no cost
    • Estimation of R and C may not be trivial
    • Claim inflation can cause material distortions in projection of future ULAE
    • Eff ect of reopened claims on accuracy of estimates of unpaid ULAE
    • How to modify approach to properly reflect the change overtime in the quantity or cost of resources dedicated to the handling of a claim as it ages
  17. Describe the Mango-Allen Re finement
    • Suggest possible variation of the Kittel re finement to the classical technique when actual historical calendar year paid claims are volatile
    • Suggest replacing actual calendar period claims with "expected" claims for historical calendar periods
  18. Mango Allen's Key Assumptions
    • ULAE-to-claim relationship is derived using paid ULAE toexpected paid claims
    • Relative volume and cost of future claims-management activity on unreported and open reported claims will beproportional to IBNR and case outstanding dollars
    • 50% of the ULAE occurs when claim is reported, 50% whenclosed
  19. Mechanics of Mango-Allen Re nement to the Classical Technique
    • Five Steps:
    • 1. Estimate CY expected paid claims
    • 2. Calculate historical CY paid ULAE to expected CY paid claims
    • 3. Review historical ratios for trends or patterns
    • 4. Select ratio of ULAE-to-claims for future claims payments
    • 5. Apply 50% of ratio to case outstanding and 100% to IBNR= Ratio * (50% * Case OS + IBNR)
  20. When the Mango-Allen Refi nement Works and When it Does Not
    • Good option for insurers with:
    • *Limited experience
    • *Highly volatile claims payment experience

    • May not be good for insurers with sufficient volume of paid claims experience
    • *Additional e ffort may not be justi ed
  21. Major drawbacks of Dollar-Based techniques
    • ULAE amount does not solely depend on claim dollars
    • ULAE responds to volatility present in estimate of ultimate claims
    • If ultimate claims drop in a year, you don't expect an immediate drop in overhead expenses or number of claims management personnel
  22. Describe Wendy Johnson Technique
    • Method suggests using reporting and maintenance as the key transactions
    • Estimates cost of each transaction by comparing historical aggregate ULAE expenditures to number of transactions occurring in same period
  23. Describe Mango-Allen Claim Staffing Technique
    • Project the following components
    • *Future CY opened, closed, and pending claims(OCP)
    • *Future CY claim staff workloads expressed as OCP claims per sta ff member
    • *Future CY claim staff count
    • *Future CY ULAE per claim staff member

    • Future CY ULAE payments, which include consideration of inflation
    • = Future clm sta ff count * Future ULAE per clm staff member
  24. Three characteristics of OCP claims that make use as a base appealing in Claim Staffing Technique
    • Reasonable proxy for claims department activity
    • Claim count based
    • Derivable from typical reserve study information
  25. Issues in Claim Staffing Technique
    • Likely quite sensitive to the magnitude of the selected parameters
    • Estimates will be influenced by parameters not explicitly considered
  26. Describe the focus of the Rahardjo Method
    • Focus on situation in which annual (or quarterly) cost of maintaining and managing a claim varies over the life of the open claim
    • Claims open for long periods of time likely to be complex requiring more claim adjuster time from a senior claim adjuster
  27. Describe Spalla's method for quantifying transaction costs
    • Claim management systems can track amount of time spent on claim by level of employee
    • Feasible to calculate average cost of each type of claim transaction
    • Bene fit - Allows for more detailed analysis of the claim activity costs
    • Can determine which types of claims, claim transactions,and stages of a claim have similar costs
  28. Describe three Triangle-Based Techniques
    • 1. Paid ULAE by AY and evaluation year triangle used to calculate development factors
    • 2. Slifka describes method that projects ultimate or unpaid ULAE based on historical ULAE payments
    • **Use time-and-motion study to estimate claim department's allocation of resources between current AY claims and prior AY claims
    • 3. Construct paid ULAE triangles by restating allocations to AY using current time-and-motion studies and/or relationships to loss payment patterns

What would you like to do?

Home > Flashcards > Print Preview