7.1 Introduction
WC high deductible reserving with occurrence and/or aggregate deductible
- Reserving for layers XS of a per occ limit and/or aggregate limit
The rest of this section is not important for exam but just background information on high deductible WC program
High deductible WC became popular in the 90’s and actuarial efforts focused on pricing issues
Program was developed to provide both insurer and insured many advantages:
Achieving pricing flexibility while passing additional risk to larger insureds in what was considered at the time an unprofitable LoB
Ameliorating onerous residual market charges and premium taxes in some states
Realizing cash flow advantages similar to paid loss retro
providing insureds with another vehicle to control losses while protecting them against random large losses
Allowing self-insurance without submitting insureds to sometimes demanding state requirements
After the program matures, the focus shifts to issues on the liability side
How to estimate these liabilities when losses are not expected to emerge above deductible limits for many years
How to construct development factors in the absence of long-term histories under a deductible program
How to determine development patterns that reflect the diversity of deductible size and mix
How to determine consistent development factors between limited and XS values
What is a reasonable approach for the indexing of deductible limits over time
How to estimate the liability associated with aggregate loss limits
Is there a sound way to determine the proper asset value for associated service revenue
- Similar to loss conversion factor in retro rating, loss multipliers are applied to deductible losses to capture expenses that vary with loss