The Impact of Catastrophic Cases on Workers Compensation Medical

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					The Impact of Catastrophic Cases on Workers
    Compensation Medical Loss Reserves

          William J. Miller, FCAS




                     281
                                       ABSTRACT

    The Impact of Catastrophic Cases on Workers Compensation Medical Loss

                                        Reserves



Catastrophic claims (defined as burn injuries, acquired head injuries, spinal cord

injuries and multiple trauma injuries) account for less than 1% of all Workers

Compensation claims but as much as 20% of total Workers Compensation losses.

The ultimate value of a catastrophic claim can be very difficult to predict, with

significant increases in case reserves many years after the injury occurred being not

uncommon. These claims introduce a high amount of variability to the ultimate

medical loss reserve projections when using standard loss development triangle

techniques.



This paper focuses on the distorting impact catastrophic claims can have on workers

compensation ultimate medical reserve projections and introduces techniques for

eliminating this distortion. The issue of the impact of catastrophic claims on ultimate

medical loss reserve projections is one that has received relatively little attention

explicitly in the actuarial literature, but is one that is important to accurate reserve

estimation by accident year.




                                          282
            The Impact of Catastrophic Cases on Workers Compensation

                                 Medical Loss Reserves



Introduction

Catastrophic claims account for less than 1% of all Workers Compensation claims

but as much as 20% of total Workers Compensation losses. For the purpose of this

paper, the definition of a catastrophic claim follows common industry practice; burn

injuries, acquired head injuries, spinal cord injuries and multiple trauma injuries.

Catastrophic claims can cost millions of dollars in medical costs and can extend over

several decades or more.



The ultimate value of a catastrophic claim can be very difficult to predict early in the

life of the claim and often even after many years have passed. As a result, these

claims account for a high percentage of the late medical reported as well as paid loss

development and a great deal of the variability in the medical loss development

triangle and in ultimate loss projections.



Within a company's claims department, these claims call for and receive special case

reserving treatment. This was not always so. Over the last 15 or more years, the

approaches for managing and case reserving these claims have changed and

become more sophisticated. This paper discusses the distortion in medical incurred

loss development triangles and ultimate loss projections caused by catastrophic

claims and by changes in their case reserve adequacy resulting from industry

practices in managing and reserving these claims. It then discusses h o w this may be

affecting the accuracy of loss projections based on incurred loss development and




                                             283
suggests an alternative tool for dealing with the actuarial issues created by these

claims which involves excluding the catastrophic claims entirely from the loss

development triangles.



Background

Since the ultimate values of catastrophic claims are more unpredictable than non-

catastrophic claims, catastrophic claims cause a great deal of the volatility in incurred

and paid loss development factors. There are many factors contributing to the

relatively higher unpredictability of catastrophic claims. Difficulties arise in

anticipating the impact of medical inflation; foreseeing changes in the condition of

the claimant or his or her home care giver(s) combined with the impact any change

may have on the future stream of payments; foreseeing future medical advances that

may be utilized for the claimant's care and their rising costs; and predicting whether

the life expectancy is impaired and, if so, to what extent.



Annual medical payments can exceed $100,000 on these cases, and anticipating

future medical inflation can be extremely difficult. Also, the future introduction and

utilization of costly medical procedures, apparatuses and drugs may affect future

medical payments on catastrophic claims. Regarding life expectancies for the

catastrophically injured population, the experts interviewed for this paper did not

reach a consensus as to whether these life expectancies are materially lower than the

total population. There was a common theme that it depends on the specifics of the

case and that the variability of the life expectancies is greater than for the total

population.




                                         284
The injured person's response to and recovery from a severe injury and its treatment

are variable and unpredictable, as are subsequent treatment needs and lifespan.

Psychosocial factors like the support of and relationship with the spouse and family

are important in determining the likely degree of long term institutionalization and the

likelihood of any return to home and an independent care situation. The difference

between the initial expected and actual lifetime medical, rehabilitation and

maintenance costs can be in the millions of dollars for some claims.



The state of the catastrophic claims handling and reserving "art" has evolved

significantly since the 70's. That changing state of the "art" is reflected in high

medical incurred tail loss development factors in the current observed loss

development factors as compared to historical levels. Insurer claim departments and

third party claims handling administrators (TPA's) are far more focused on early and

proactive intervention and case management of catastrophic medical cases than they

were twenty years ago. In addition, they are far more adept at understanding the

complex factors that affect the cost of these claims and anticipating their impact on

the ultimate cost. Given the greater focus on early accurate measurement of the

ultimate cost of catastrophic claims today than in the past, it is reasonable to

hypothesize that the paid and reported losses for catastrophic cases will not develop

in the same fashion as they did in the past, and the differences may be dramatic.



Case reserves for catastrophic claims were in many cases stair-stepped in the 70's

and 80's. That is, often no meaningful attempt was made to project the ultimate cost

of catastrophic claims. The impact of this tendency to stair-step catastrophic case

reserves is embedded in the loss development factors we rely on today to predict




                                          285
future loss development. Today, however, insurers, their claims administrators,

managed care providers and reinsurers are far more proactive in not only managing

catastrophic claims but also in determining realistic projected ultimate values of each

catastrophic claim and regularly reviewing their estimates. Many companies and

TPA's have claims adjusters or nurse case managers that specialize in catastrophic

cases. Third party vendors now exist that deal exclusively with these types of

claims. As a result, catastrophic claims are more adequately reserved today than is

implied by the historical medical incurred loss development factors. Not only does

the inclusion of catastrophic claims cause volatility in the observed development

patterns, a significant portion of the historical incurred development caused by

catastrophic claims may not be repeated on today's claims.



An Alternative Reserving Tool

One goal of this paper is to increase the awareness of actuaries to the existence and

potential impact of catastrophic claims in the historical losses and development

patterns. For example, when projecting the ultimate losses for a particular accident

year, one needs to be aware of whether there are any catastrophic claims in that

year. This should affect the magnitude of the incurred loss development factor

applied. The presence of catastrophic cla!ms tends to increase the variability of the

ultimate reserve and the risk of material adverse deviation. If a catastrophic claim is

present, it is valuable to understand the details of its case reserve derivation: the

level of effort put into estimating the case reserve, the life expectancy and medical

inflation assumptions used, the catastrophic claim experience of the individual who

developed the reserve, the time elapsed since the last review, and in general the

likely upsides and downsides from the case manager's perspective. From this




                                          286
review, the actuary should be able to gain a sense of the variability in the cost

estimate, and where it falls in the range of potential outcomes.



Another goal of this paper is to suggest an alternative tool for projecting workers

compensation losses that can help identify the distorting impact catastrophic claims

are having on reserve projections and that can in many cases provide more accurate

projections. The approach is to isolate and restate the loss development patterns to

exclude the catastrophic claims, to then develop the non-catastrophic claim losses

separately, and to rely on separate existing case specific techniques to estimate the

ultimate value on the catastrophic claims.



Excluding the catastrophic claims produces much more stable development patterns

and much more stable and smaller medical tail factors. The loss triangle of data

exclusive of the catastrophic claims will have most if not all remaining claims with

little or no ongoing medical payments after 15 years. Given this greater stability and

shorter tail, more accurate projections of ultimate loss for the non-catastrophic

claims can be made.



For the remaining catastrophic claims, qualified nurse case managers can perform

detailed evaluations of the future cost of these claims called Life Care Plans. These

are the best w a y to estimate the ultimate cost of these claims. The ultimate value of

each claim is best estimated individually (as is the payout pattern, which will be

needed for cash flow and discounting purposes).




                                          287
This tool is most valuable in reviewing accident years that are at least two or three

years old. Given the nature and severity of catastrophic injuries, they are identified

early. However, it is usually not until the early acute phase of the treatment is

completed that Life Care Plans are prepared and that the actuary can rely upon

individual case reviews.



A claim nurse case manager or claims adjuster with extensive experience with

catastrophic claims best develops Life Care Plans. These evaluations consider many

factors such as psychosocial and other factors as well as physical factors in making

projections of the length of acute care, the likelihood and expected point at which the

injured person will be able to return to the home and then to non-supervised status,

the point at which medical costs will stabilize, if ever, the maintenance costs once a

level of stabilization is reached, the life expectancy, etc.



Because of the difficulty of managing these catastrophic claims, Life Care Plans are

frequently created today (although not 10 or 15 years ago). This careful review helps

manage the claim more effectively and provide the proper care without spending

excessively. It does this by developing a long term plan for the victim's care and

treatment, one that often involves frequent communication with the victim's family.

Given the detail that goes into a Life Care Plan, inaccuracies in the individual

estimates can be identified quickly after a significant change in conditions or

treatment plan occurs. Also, these inaccuracies are not contaminating your non-

catastrophic claim loss development triangles. Moreover an actuary can work with

the developer of a Life Care Plan to develop the high end of the range and low end of




                                            288
the range of reserve estimates for each of these claims to help in setting ultimate

reserves for these claims within the context of setting the aggregate reserves.



Highly experienced catastrophic nurse case managers and claims adjusters are

uniquely qualified to put together Life Care Plans, and annual lifetime care cost

projections for each catastrophic claim. In putting a Life Care Plan together, the

experts consider many factors, including those mentioned above, as well as how

people tend to react in these difficult situations and how all these factors interact.



How Is This Different from Limited Loss Development Patterns?

The approach of excluding catastrophic claims from the loss development triangles

and separately analyzing the individual catastrophic claims is in some ways similar to

projecting losses on a limited per occurrence basis, but it has certain advantages

over that approach. It is true that some of the volatility introduced by the inclusion of

catastrophic claims in the development patterns can be eliminated using limited loss

development patterns, especially in the tail. This is not an adequate solution,

however. Using limited loss development factors leaves the concern of projecting

losses by year in excess of the limit, and the presence or absence of catastrophic

claims, and their volatility, greatly influences the excess losses. Also, the limited loss

triangles will still contain the distortion caused by the case reserve strengthening that

has occurred on catastrophic claims over the last 25 or so years.



Data Challenges

Obviously, in order to perform this approach it is necessaw to identify catastrophic

claims and remove them from the entire loss development triangle. Research done




                                          289
in preparing this paper indicates that each actuary may have to rely on different

approaches depending upon how the company's data is coded. For some, the

system may have a unique catastrophic claim identifier, in which case this approach

is relatively easy to do. If this is not the case, catastrophic claims may have unique

claim descriptions such that the claims can be culled out by searching the claim

description. The number of these claims is typically small and manageable, even in

the largest companies, and each has the attention of the claims department so that a

manual process of identifying and removing these claims may be appropriate.

Narrowing the search by starting with only claims over, say $250,000 in medical loss

can save time in identifying these catastrophic claims, particularly on the older years.



An Example

An example will now be presented to demonstrate the concept of isolating and

excluding catastrophic claims from the incurred losses and loss development

patterns. This example will demonstrate the increased stability in the development

triangles when the catastrophic claims are removed. It demonstrates that more

accurate ultimate reserves are derived. It demonstrates that, given that catastrophic

claims are reserved far more adequately today than during the time period reflected

in the loss development triangles, traditional methods tend to create an upward bias

in the loss projections. There may still be years in which the ultimate projections are

understated by the traditional approach, namely years where catastrophic claims

occurred and there is still potential for significant development on them. In total,

however, the traditional approach may be resulting in an overstatement of ultimate

losses.




                                          290
The alternative approach involves separating catastrophic claims from the medical

losses and loss development triangles. In the attached exhibits displaying

hypothetical reported workers compensation loss development triangles, Appendix 2

represents the loss triangles including the catastrophic claims. Appendix 3 shows

the triangles for just the catastrophic claims. Appendix 4 displays the triangles

restated to exclude the catastrophic claims.



Once catastrophic claims are excluded, the ultimate losses for the non-catastrophic

medical losses can be projected using standard actuarial techniques: loss

development, frequency/severity analysis, etc. The actuaries must then review each

of the catastrophic claims with the case managers to estimate the probable range of

outcomes. This multi-disciplined approach can be valuable not only in informing the

actuary of the range of potential costs of the catastrophic claims, but also in

educating the case manager of the potential impact of future medical inflation on the

cost of the claim.



For the latest few accident years, this alternative approach may not work without

adjustment because of the potential for late emerging catastrophic claims, and

should be supplemented or modified. Because these catastrophic claims tend to

arise from sudden and severe accidents they are usually known relatively quickly,

they tend to generate a small pure IBNR component. Nonetheless, there are

examples of cases that start out as moderately serious cases and later deteriorate

into catastrophic claims. Also, there can be IBNR catastrophic claims due to

reporting lags. Finally, for recently occurring catastrophic injuries, enough time may




                                         291
not have passed to do a Life Care Plan or to reasonably evaluate the ultimate cost of

the case.


In order to address this IBNR concern the more recent few accident years can be

projected through the traditional method of applying including catastrophic claims

loss development factors to including catastrophic claims losses. These loss

development factors reflect an average of years with high and low frequency and

severity of catastrophic claims.



Another approach is to derive a catastrophic claim emergence pattern so as to

measure the expected number of pure IBNR catastrophic claims. These expected

claim counts are then multiplied by a catastrophic claim projected average severity

to derive an estimate of unreported ultimate catastrophic losses. This average

severity should be based on a long term history of catastrophic claim severity. Given

the volatility in average severity for these infrequent claims, each year's average

severity should be trended to the cost level for the year being estimated, and an

average severity should be selected based on a review of the results over a long

period of time. The unreported ultimate catastrophic losses are then added to the

reported ultimate catastrophic losses (assuming Life Care Plans have been

performed on the reported catastrophic claims) and the ultimate losses for non-

catastrophic losses.



An example of this approach is shown in Appendices 5, 6, and 7. Appendix 7 shows

the catastrophic claim emergence pattern, which indicates that well under one

catastrophic claim per accident year is expected to emerge after the end of the first




                                          292
year. Appendix 6 shows the derivation of the trended average medical costs per

catastrophic claim. Appendix 5 combines the expected claim count and severity to

determine ultimate loss projections for IBNR claims.



When trending catastrophic medical claim severities, a higher trend rate than the

average workers compensation medical trend rate should be used. These claims

tend to have a high percentage of ongoing medical cost from long term care and

pharmaceuticals, both of which are experiencing (and are expected to continue to

experience) higher inflation rates than medical costs on average.



This paper has described an alternative approach to estimating ultimate medical

reserves for workers compensation that treats catastrophic claims separately. The

results from this alternative approach should be considered relative to results based

on traditional methods in light of a number of factors. For example, if the volume of

catastrophic claims is relatively consistent from year to year, traditional methods may

not work too badly unless case reserve adequacy has changed. If the claims

department procedures for handling catastrophic claims have changed over the

years (for example if they previously tended to stair step the case reserves}, this

alternative approach is important to avoid distorted results. If the case managers

performing the Life Care Plans lack expertise on catastrophic claims, the accuracy of

the alternative approach may be threatened. At a minimum, this alternative

approach is useful in sensitivity testing the impact of catastrophic claims on loss

development patterns.




                                          293
Appendix I shows the derivation of the results for the standard and alternative

approaches. The Summary exhibit compares the results of this alternative approach

compared to the standard approach. The overall redundancy in reserves is

significant. Again this is caused by the impact of significant case reserve

strengthening on catastrophic claims in the standard loss development method. The

alternative approach indicates that the significant strengthening that occurred on

catastrophic claims in the past will not occur to nearly the same extent and properly

removes the distorting impact from the projections.



This example also illustrates that, even if the standard loss development factors were

not distorted by non-repeating case reserve strengthening, the development factors,

while accurate on average, are not accurate for any year. The years with the

catastrophic claims will be understated and the years without the catastrophic claims

will be overstated. In practice, there is no reason to think these overages and

underages will perfectly "balance" out overall, so this approach improves the overall

accuracy in addition to the by-year accuracy.



Summary
This paper is intended to increase the awareness of actuaries of the important role

catastrophic claims play in workers compensation reserving. Changes in case

management and reserving techniques for catastrophic claims are discussed in the

context of the potential for distortion these changes have on ultimate medical loss

projections. An alternative approach to developing workers compensation medical

losses that deals with this distortion is illustrated, While many other factors have




                                          294
affected workers compensation loss development factors over time, this approach

attempts to isolate and adjust for one important factor.




                                       295
Summary

Comparison of Results From Alternative Methods
ALl Figures in Thousands




                    Acc Yr             Standard   Catastroohic   Difference
                      (1)                 (2)         (3)            (4)

                     1988               21,789      21,912           123
                     1989               37,638      37,028          4311
                     1990               31,898      31,255          4343
                     1991               30,337      30,278           -59
                     1992               25,470      25,724           254
                     1993               35,395      35,550           155
                     1994               27,313      27,134          -179
                     1995               25,014      24,933           -81
                     1996               26,102      27,047           945
                     1997               32,006      29,036        -2,969
                     1998               35,991      33,055        -2,936

                 Total ex 97,98        260,957      260,861           -96
                 Total                 328,953      322,952        43,001




                                         296
        Appendix 1

        Derivation of Ultimate Loss Projections From Alternative Methods
        All Figures in Thousands




                           Standard Method                                 Catastroohic Claims                         Excludine Catastroohic Claims

                                      Selected                                                                                        Selected
                         Reported      Loss    Selected                        Reported     Selected                       Reported    Loss    Selected
                          Medical     Develop- Ultimate                         Medical     Ultimate                        Medical   Develop- Ultimate
                         Losses as     ment     Medical                       Losses as      Medical                      Losses as    ment     Medical
               Acc Yr                 Factors   Losses             Acc Yr     of 12/31/98    Losses            AccYr      of 12/31/98 Factors   Losses
                 (1)         (2)         (3)      (4)                (5)          (6)          (7)              (8)           (9)       (10)     (11)

                1988       20,525      1.062      21,789            1988             0            0             1988        20,525       1.068     21,912
xo
.,.,4           1989       35,278      1.067      37,638            1989         6,000        5,500             1989        29,278       1.077     31,528
                1990       29,749      1.072      31,898            1990         4,000        3,500             1990        25,749       1.078     27,755
                1991       28,152      1.078      30,337            1991             0            0             1991        28,152       1.076     30,278
                1992       23,518      1.083      25,470            1992         3,000        3,500             1992        20,518       1.083     22,224
                1993       32,359      1.094      35,395            1993         7,000        8,000             1993        25,359       1.086     27,550
                1994       24,481      1.116      27,313            1994             0            0             1994        24,481       1.108     27,134
                1995       21,916      1.141      25,014            1995         5,000        6,000             1995        16,916       1.119     18,933
                1996       22,096      1.181      26,102            1996         5,000        7,500             1996        17,096       1.143     19,547
                1997       25,086      1.276      32,006            1997             0          571             1997        25,086       1.135     28,465
                1998       22,568      1.595      35,991            1998             0        2,058             1998        22,568       1.373     30,996


             Notes:
             (2), (3) from Appendix 2.
             (4) = (2) x (3).
             (6), (7) selected judgmentally based on author's experience with catastrophic claims and catastrophic claim development.
             For 1997 and 1998, see Appendix 5.
             (9), (10) from Appendix 4.
~pc4nd~ 2

Wodu~ C o m p e m ~ Rm : ~ d Uld,<:~ ~osses ~nd LOSS~                          FIc~onl k'~ud~ngC~slro¢~c C~ms
NI F ~ s tn Thoul-lm~




   Accident                       Eva k ~ l o n Age In MOnths
     year            12       I        24      I       36        I    49       I    ~       !     r2        I       "       I       96       I   106       [   120       I   132       I   1.       I
     1970
     1077
     1978
     1979
     I~0
     1961
     1962                                                                                                                                                                                    7,725
     I~3                                                                                                                                                                       8.572         0,623
     IM4                                                                                                                                                         9,516         9.535         0,5,?.5
     1995                                                                                                                                         11,939        12,130        12.312        16,16~
     1966                                                                                                                           15,352        15.337        15,367        15.506        18,002
     1967                                                                                                           19,479          19,713        19,575        19,183        19,375        19666
     1968                                                                                             20,697        21,028          20,671        20,609        20,382        20,525
     1969                                                                            29.419           29,654        32,234          32,653        32,817        35,270
     199o                                                             27,851         28.241           20,~7         28,438          20,495        29749
                                                        27,5110       28,049         27,516           27.571        28,04;0         28,152
     IO~2                              20,6341          21,~1         20,910         21,277           23,860        23,518
     19~3            25,965            30,743           30.404        32,168         32,007           32,359
     1994            19,713            23,901           23,903        24,190         24,481
     1995            17.962            21,~I(I          21.K17        21,919
                     17.790            20,845           22,096
     1997            20,069            25,066

                                  ~e ~ d           In Morlthl
     Yw            12,o24 [ 2,,,,~               I ~'*4a           I '8"6°1        60,.72 I 72,o~,              I ~'096         [ 061o1°~ 11°8~°12°1 12°~°la211a21°l"l ~ ' ° I ~ 1
     1976
     1977
     1978
     1979
     1960
     1'96t
     1962                                                                                                                                                                                       1006
     t963                                                                                                                                                                      0999             0 997
      1964                                                                                                                                                       1 015         1313             I O02
      1965                                                                                                                                                       1009          1032             0996
      19~                                                                                                                                0993      0~            1010          1 015
      1M7                                                                                                               0M3              0 997     0             I O07
      1069                                                                                             1 067            1 013            1 005     1 0?5
      1969                                                                              1009           099t)
      1990                                                             0961             1002           1017             100.q~
      1901                                               0989          1022             1112           0994
      t99'2                              0969            1.0~          0~               1011
      1993                1 215          09N             1 012         1012
      1994                12o6           IOC(~           1005
                          1 172          1 060
      1996                1250
      1~RI7

               Slmpie Averlbge of Llltest 4
       P)            1211         1 013                     1016           1~963        1~13           1 (24            1001             I 010         1 012         1 010         1 090        I 061

               ~!ml~4 AvemOo o~ LMeM 2
       r'J]          1 210       1(21                       I 025          1 010        1042           1 0(]3           1006             1015          1 015         1 009         1120         0 999

               ~           Awwage ~ ~      2
       [41                1.211      1 033                  1.009          1004         1~962          I O05            1 003            1025          I O32         1 OO9         1 024        I 060

               V ~         W1tg/n~bNlA ~                      i
                                                     ~ l.a41d~t
       pl                 1213        1~                  I~               1022         1013           1014             1011             1004          1002          1061          1002         1067


                          12430             1(~0            1~             1023         1020           1010             ICC6             1005          10(~          1005          1005         1005



                          15415             1276            1 191          1 141        1116           1 094            1 (~3            1 078         1 072         1 067         1062         1{~6




                                                                                                298
W 2




      1976
      1977
      1078
      1979                              4,077      4,992       S,O~2      5,012      5,288
      10(¢)                  6,074      6,056      7,.(~4      7,502      7,464      7/;'03
      1881        8,197      8,~        6,2~6       0,34~      0.335      8,319
      1002        7,9,49     B,185      8,(;61      8.670      8,418
      IN3         8.67~      8,693      8,73~       8,1K~
      1964        0,49)'     9,53.~     0,670
      lies       16,188     16,214
      19e6       15.970
      lgg?
      1880
      188~
      1N0
      19t~1

      19e3
      1004
      188G
      11808
      1907

  Ar,~ddmt
    YW        156W1M J 1M1O 180 ( 1801o192 J 1921o204 J 204 1O216 J 21elo220 I 2291o240 I 2401O252 J 252 1O264 [ 21t4 1OUIt I

      1977
      1971                                          1004       1.000      1055
      1979                               1 073      1006       0.t~5      1.0~
      1880                   O886        1 O22      0804       09gg
      1881        1153       0S¢5        1001       0971
                  10~        1.0(~       1 008
      18e3        1004       1 015
      1M4         1O01
      11M~s
      tm
      1M7
      lm
      lm
      lmlO
      11ml
      1N~2
      1/[Q3
      1~4

      188e



      [1]         1.040      0990        102e       0~4        0.~        1046        1(X~       1.000      1~0         1.000


       [3~         1002      og~l        1.010      1.0~       1.010       1.014      1.0~Q      1.1300     1.0(]0      1,GO0


       [4]         1003       1 010      1,~        1.001      I OOB       1.0~0      1.~        1,0GO      1~ 0        1. ~


       ~J          1.0(~      09eg       1~         1,004      1.010       1,013      1.0CQ      t 000      10(]0       10(X)


9elocted           I 005      I (~6      1.006      1,005      10O6        10~        1,005      1004       101 t       1 000


Oev to U#          1051       10~        t 041      t.036       1030       1.025      1.~0       1.015      101t        1.035




                                                            299
                                                                y
VVorW~ Cemcenss~onRepU1~ Me,~icsl Losse. c n~ s~1~,h,c Clmm8C;,nd
/el F ~ s ~ Thoulln~l




   Acc~ent                         Evaluibon Age in Months
     Ytat           12         [       2,,       [   ~,         ]   ,8         I   ~             L    "__J_    64       ]   ~       I   10B       [   120       ]   132       [   144       I
     1976
     1977
     1978
     1979
     19~0
    1981
     1982                                                                                                                                                                           1000
     1963                                                                                                                                                                 o            0
     1984                                                                                                                                                   0             0             0
     1985                                                                                                                                                                           4,5CK)
     1986                                                                                                                       o             0             o             0             O
                                                                                                                    0           0             0             0             0             rj
     1968                                                                                                  0        0           o             0             0             0
     1989
     1990                                                            2~                2.~
     1991                                                   0              0                 0             0        0           0
     1992
     1993
     1994                  0                 0              0              0                 0
     1995            4.~                 4.7~         4.~            5,~
     1996            2,~                 3,~          5,~
     1997                  0                 0




                                                                                                     300
A#per~ 3

yVorkorl C.ompe~ $8Uot~ R epocl~.d Med,~l Losses Cst as~'~phlc CI01ms O~y
All ~ r e s ~ T ~ S e ~ S




      ckdent
      ". . . .         ~       I    ~            I   ,8o       I   ,92         [   2o~       I   z,6      I   228    I   2,0   [   ~52   l   ~
      1976
      1977
      1978
      1979                                             1 20O         1.200           1 2O0         1200         1,46~1
                                        1c o o         10oo                                        1,~          1800
      1981                    o             0
      1982               1 ,COO         1.800          1.60O         i .6.90         1 50O
      t~3                     0             0              0             o
      t984                    0             9              0
      1~5                4,50O          450O
      19~                     0
      1987
      1988
      1989
      19£0




      19'94
      1~5
      1996
      1~7




                                                                                   301
    Emmplnulon MI~CI~ RNX~'~ Los~l ~                Loll D l ~ p m l n t Fic~nl F J ~ l n ~ Ce~llmo~:~ C~l~ml




Accklem                       Evmiuatl~ A~e in MoMhs
  Year           12       ]       24       I   30       I     48       I    80       I     72          I   84           I   gG         [   loo       I   120       I   132       I   144       I
  1g76
  1677
  1676
  1979
  llm0

 1N2                                                                                                                                                                                   6,725
 1963                                                                                                                                                                    9,572         9.623
 19e4                                                                                                                                                      9.516         9,,~35        9,525
 1NS                                                                                                                                        10.939        11,130        11,312        11r~
  19~                                                                                                                       15,3,~12        15.337        15,367        15.509        16.002
  IN7                                                                                                      19.479           19.713          19,575        19.183        19.375        19.666
  lm                                                                                        20.697         21.028           20,971          20.8011       20,~2         20525
  1~g                                                                        26,419         2G.654         27.734           29,193          28317         29,279
  19OO                                                         25,351        25.741         25,867         25,938           2S,gg~          25,749
  1111)1                                       27,580          28,049        27.$16         27,571         28,040           29152
                                  19138        19,5,51         19,319        19.777         20,660         20,518
  lW3            21.965           23,743       23,404          25,168        25,0137        25,359
  1tlG4          111.713          23,951       23,903          24,110        24,481
  1~5            13.1162          10,948       17,307          10,916
  19ge           15.286           17,845       17,09~
                 2O,O69           2S,0e6

                              Ink~v~ In kkmlhs
  Ymr        121o24       1 241o36 I ~.4,               I 48~g0         I 60~,72       I 72~094        I 64~o~          i ~.loo        i10e~,~201 120~o1~2 1 1a2•144 I 1 4 4 . , ~ I
  1176
  1177
  t|78
  1979

  1M1
  1912                                                                                                                                                                                 I006
  1R3                                                                                                                                                                    01199         0 I¢17
  1OO4                                                                                                                                                     1 016         1031          1 003
  lg15                                                                                                                                       IOO2          I OOg         1032          0 9~I
  lSG6                                                                                                                        0 I)93         0 980         1 010         1 015
  IM7                                                                                                       0 Se3            099;'           0 9e9         I oo7
  lm                                                                                         1 041          1 015            1006            i 034
  lm                                                                          loog           091~           I002             09sI
  1N0                                                           01ml          100~           1017           1004
  llml                                          09m             I 0~/4        I O45          0 N3
  lW2                              0~           1.07S           091~4         I 014
  iN3             1215             0998         1 012           1012
  I~e4            1214             10QI         0977
  19e5            1167             0958
                   I 2.~10
  1MI7

           I ~      Al,Cmllle e4 t.lleet 4
   I11             I 212         0 H1           1013            1003          I 017          1 012              1001         0 917           1001          1 011         1 0111        1001

           Ilkmllle A ~ r l G I af LmFJlt 3
   13]             1210            6~           1 022           1 010         1 020          1 003              1 007         0 gge          1 001         1009          1 026         0

           Sk,r¢de Avcmqp ef t.atm~ 2
                  12~$I       G9GO              01105           I(~3          IOQ9           IG0~,              1003          099~           1011          I009          10~4          I0~(I

           VeltJem W ~            Avemle o~ Lam4t S
   tl~           1 213             I0~)       I(1~9             I~12          1 013          1 014              1 011         1 004          1 002         1 001         I IX~         1 007



                   1210            0~               I ~Q2       1 010         I ~0           10(KI              1007          0 9ge          I ~I          1 009         I ~15         0 g9g


                   1 373           1 13S            1 143          1 119      1 108             1086            1 003         1 076          I 079         1 077         1 068         1 040




                                                                                         302
WOr~eel C.o~'~oa~slbO¢lMi~d,cal R,ii~o~led Losses and LOSt    De~NoOcnllnl El¢lndlng
                                                                       FIctocs     CatiltrOph,c             Clatm$
/d~ F~gu,'w,m Thousands




   Accident                                                                                                                                                       I
     Year             156       [   168       [   180         [   192       I   204       [   216       i    228       [   240       I     262       I
      1976
      1977
      1978
      1979                                          3777            3,?92         3,912         3812            3888
      1990                            5874          5,956           5.964         6,002         598.4           5963
      1981              8197          9,238         6,205           9.386         8335          8319
      1962              6.949         7,985         7,061           7.070         6918
      1963              8.676         8.693         8.736           8,806
      1984              9,497         9.636         9678
      1985             11.69e        11314
      1966             15,970
      1987

      1989
      1990
      1991
      1992
      1993
      1~J,4
      1995
      1996
      1997

    Accident                                                                                                                                                      I
      Yesr         199,o16~ [ l s s t o lS0 I 190to192 J 1921o204 I 204to2*6 [ 216,o22e I 2291o2=0 I 240to252 [                          252to:,~ I      2~toU,
      1976
      tQ77
      1979                                                          1005          1C<X)         1020
      1979                                          1001            10C6          0994          1000
      1990                            0996          1 022           0 99.4        0 998
      1961               1 060        0 959         1001            C'9"9
      1962               1 002        1 005
      1983               1004         1015
      1964               1 001
      1965
      1966
      1987
      1988
      1989
      19~
      1981
      1992
      1993
      1994
      1995
      1996
      1997


                         I 017         O994             10~         0996              0997          1 010          1 OO2         1 000           1 000       10C~



                         1 00~         0993             1 010           1 OO3         1 010         1 014          I(X~          10C~            1000        1 000



                            1003          1010          1005            1001          10C~          1(~0           1 003         1 000           1 99O       lO(XI



        (Sl                 1008       09'99            1009            100,4         1010          1013           1002          1000            11~         1000



                            1 0o2         0993          1 010           I OO3         1 010         1 014          1 002         1 000           1 005       1



                             041          1 039         10 , ~          I 035         1 032         1 021          1 0O7         1 00~           10D5         10(X)




                                                                                303
Appendix 5

Derivation of Ultimate Catastrophic Medical Losses for Accident Years 1997 and 1998




                                                                          Selected
                                       Expected                           Ultimate
                                       Number of                        Catastrophic
                                      Catastrophic      Average           Medical
                          Acc Yr        Claims        Severity. (000)   Losses (000)
                            (1)           (2)               (3)              (4)

                           1997          0.111            5,140              571
                           1998          0.374            5,500            2,058



                        Notes:
                        (2) from Appendix 7, Cumulative Row
                        (3) from Appendix 6
                        (4) = (2) x (3)




                                       304
Appendix 6

Derivation of Average Medical Cost per Catastrophic Case




                                                                                           Average
                     Ultimate         Ultimate                            Trended          Cost per
                    Number of       Medical Loss      Catastrophic      Medical Loss     Catastrophic
                   Catastrophic   on Catastrophic    Medical Severity on Catastrophic   Claim Trended
       Acc Yr         Claims        Claims ~000)          Index         Claims (000~       To 1998
        (1)              (2)              (3)               (4)              (5)              (6)

        1978             0                   0             1000                 0               0
        1979             0                   0             1.110                0               0
        1980             2               1,800             1232             8,782           4,391
        1981             0                   0             1.368                0               0
        1982             1               1,500             1518             5,939           5,939
        1983             0                   0             1.685                0               0
        1984             0                   0             1.670                0               0
        1985             2               4,500             2.076           13,029           6,514
        1986             0                   0             2.305                0               0
        1987             0                   0             2.558                0               0
        1988             0                   0             2.839                0               0
        1989             2               5,500             3.152           10,490           5,245
        1990             1               3,500             3.498            6,014           6,014
        1991             0                   0             3.743                0               0
        1992             1               3,500             4005             5,253           5,253
        1993             2               8,000             4.286           11,220           5,610
        1994             0                   0             4.586                0               0
        1995             2               6,000             4.907            7,350           3,675
        1996             1               7,500             5.250            8,587           8,587
        1997                                               5.618
        1998                                               6.011

       Total             14            41,800                              76,663            5,476
      Selected                                                                               5,500




    Medical Inflation Rate from 1982 to 1990               11.0%
    Medical Inflation Rate from 1990 to 1998               7.0%




                                                    305
Appan~x 7

Workers C o m l x ~ b o n RepO~l~ C~ms~p~vc CZmmCout~ Emeq~mc~




   Acck~ent                         EvaluaUon Age ~n MonUts
     Year             '~        I       ~4        I   ~            I   40        I   eo         ]     72          I   8,         I   ~            I   108         I   120        l     132         J   144      I
     1978
     1977
     1978
     Ig~                    I                 1                Z             2              2                 2              2                2               2              2                 2
     1980                   I                 2                2             2              2                 2              2                2               2              2                 2
     I~1                    0                 0                0             0              0                 0              0                0               0              0                 0
     Ig~2                   1                 I                I             1              1                 1              1                1                              I                 I
     IQ~3                   0                 0                0             0              0                 0              0                0               0              0                 0
     1964                   0                 0                0             0              0                 0              0                0               0              0                 0
                                                                             2              2                 2              2                2               2              2                 2
     198~                   0                 0                0             0              0                 0              0                '~              0              0                 0
     1~7                    0                 0                0             0              0                 0              0                0               0              0                 0
     I~                     0                 0                0             0              0                 0              0                0               0              0                 0
     1N9                    1                 2                2             2              2                 2              2                2               2              2
     19g0                   0                 0                1             1              1                 1              1                I               1
     1~1                    0                 0                0             0              0                 0              0                0
     1992                   I                 I                I             I              I                 I              I
     1~                     I                 2                7             2              2                 2
     1994                   0                 0                0             0              0
     1995                   I                 2                2             2
     1~                     1                 1                1
     1~7                    0                 0

   Acckk.nl                         A ~ ~tw,rvat~KI,onttrm
     Yier        12w24          J :4.~S           I ~,o~           J 4e~oeo [ 60~72             ] 72~             I s~o~         I ~o:oe          {~08~,201:201o132J                 :32to~44J 1.~,50           I
     Ig7B

     1978                   0                 I                0             0              0                 0              0                0               0              0                 0
     t~9                    1                 0                0             0              0                 0              0                0               0              0                 0
     I~                     0                 0                0             0              0                 0              0                0               0              0                 0
     I~I                    0                 0                0             0              0                 0              0                0               0              0                 0
     1962                   0                 0                0             0              0                 0              0                0               0              0                 0
     1963                   0                 0                0             0              0                 0              0                0               0              0                 0
     lW4                    I                 0                0             0              0                 0              0                0               0              0                 0
     I~                     0                 0                0             0              0                 0              0                0               0              0                 0
     1~                     0                 0                0             0              0                 0              0                0               0              0                 0
     lg87                   0                 0                0             0              0                 0              0                0               0              0
     I~                     I                 0                0             0              0                 0              0                0               0
     1~                     0                 I                0             0              0                 0              0                0
     1~                     0                 0                0             0              0                 0              0
                            0                 0                0             0              0                 0
     I~                     I                 0                0             0              0
     lge3                   0                 0                0             0
     I~                     1                 0                0
     lge5                   0                 0
     1~                     0



               AI Y~r A q
      (1]            0,203                0.111           01~0          0 000         0000              0~             O0(X)             00~0           0.000          0000              0000           0,000



               ~k~l
                       0~                 0111            0H            0~            0.~               0.~            0.~               0~             0.~             0~               0.~            0.~



Ctm~tdelllve           0374               0 111           0 0(XJ        01300         0000              00(X)          0(XX)             0 000          0 000           0 000            0 000          0.000




                                                                                                    306
,'¢.pe~r x ;'

Wcrkwz ~ Z a b O n       R~ea         Cataslrop~c Cll,m Cou~t Em~ge~e




    Ac¢~ent
      Year              1~        I      1~            I   ,eo        I   ~92        ]   20,          I   219        l   229   I   z,o   [   252   1   29~   I
       1976
       t977
       1978
       1979                       2                2              2              2                2              2
       1980                       2                2              2              2                2              2
       1981                       0                0              0              0                0              0
       1982                       1                1              1              1                1
       I~3                        0                0              0              0
                                  0                0              0
                                  2                2
       1986                       0
       1~7
       1988

       1;,90



       1~3

       1~5
       lg96
       1~7

       :c~ent
       ¥1ar          156 10 168 ] t68 I0 180 ] 180 Io 192 I 192 1o 204 I 204 to 216 1 216 to 229 I 228 to 240 I 24(I to 252 1 252 I0 2154 I 264 to t./It ]
       1976
       1977
       1978                       0                O              0              O                0
       t979                       0                0              0              0                0
                                  0                0              0              0                0
                                  0                0              O              O
       1~2                        0                0              0
                                  0                0
       1984                       0
       l~et5
       1968

       1988
       1~9
       1990



       1~3
       1S94
       1~$
       198~




                             O~               O~             O~             O~             0,~              O~




 $elKtH                      0 COO            0 000          0 000          0 000          0.000            0



 Cumulat~e                   0 000            0 000          0 000          0000               0 000        OOCO




                                                                                         307
308

				
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