Accelerating Claims to Improve Ultimate Loss Estimates
Most insurance and claims professionals appreciate the need to close claims as quickly as possible to avoid ongoing costs. For the majority of claims, this is done quickly and easily. However, for approximately 5-10% of the number of claims in a program, this is a difficult and time-consuming process.
Normally, the significant claims represent 50-60% of the cost of the program. While it has been difficult in the past to gather all of the information necessary to settle these claims, it is much easier now due to improved communication technology, analytics and projections. Reviewing your claims regularly with new techniques and methods will improve your final loss development factors and ultimate costs, and allow your programs to be more profitable, competitive or optimized.
To gain an understanding of the ultimate costs of claims, an actuary will use a loss development factor to project an estimate of future ultimate losses. They apply these factors to recently evaluated losses in order to arrive at an ultimate loss estimate. Loss development factors (LDFs) are determined using loss development triangles, where loss experience (or development) can be measured over time. These triangles are commonly measured over annual time periods, and are used to quantify a program’s unique loss experience.
If your programs are being measured by actuaries once a year, it makes sense to prepare quarterly analyses to focus on large losses using all the current techniques available. Key questions to ask during these reviews are:
- Have we properly reserved this claim to the accurate final settlement cost?
- Do we have all of the information necessary to measure and manage the most effective outcome?
- Do we have the right resources to determine what the final settlement cost should be?
- Are we involving everyone on the team to produce the best final results?
- Are we accelerating the claim with appropriate follow-up and reviews?
By answering these questions with experienced advisors, your large claim ultimate costs and your loss development factors will improve and your program will become optimized.
For more information about accurately measuring the value of your claims, and accelerating your claims for settlement, please review our series of articles noted below.