A New Approach for Determining Claim Expense Reserves in Workers Compensation

This paper describes a new approach for determining a reserve for claim expenses. While the discussion focuses on workers compensation claims, the methodology is equally applicable to other lines of business. The approach also can be applied to the calculation of the reserve for all claims (including IBNR claims) and the reserve for claims reported to date excluding IBNR claims). In addition, a methodology for pricing claims-handling services is discussed. The implications of pricing claims-handling services on a handle-to-conclusion basis versus pricing claims-handling services on a limited time handling basis are examined. Finally, the paper discusses a methodology for tracking the duration so that the rate of claim losing can be monitored. This, in turn, allows targets to be set. Departments that are interested in implementing new techniques for shortening the duration can use the monitoring techniques to determine if their new claim-closing techniques are successful.