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.