A Mortality-Based Approach to Reserving for Lifetime Workers’ Compensation Claims

Adverse reserve development in older accident years (i.e., related to injuries occurring more than 10 years ago) is a continuing issue in the workers’ compensation industry. The use of informed judgment or the application of advanced modeling techniques for projecting this runoff (such as curve fitting) in traditional loss development methods often misstate projections. A mortality-based approach, similar to pension and life/disability insurance models, may produce more meaningful liability estimates when applied to older workers’ compensation claims. This paper provides the basic framework of a mortality-based approach, including important considerations regarding the underlying assumptions and model design.

Keywords: mortality; reserving; medical trend; life expectancy/contingency; workers’ compensation, pension.