On Pricing Multiple-Claimant Occurrences for Workers' Compensation Per-Occurrence Excess of Loss Reinsurance Contracts

This paper describes a method that can aid the underwriter in pricing the multiple-claimant occurrence exposure for workers compensation excess of loss reinsurance contracts. First, the current practices are described, and the necessary considerations for selecting a method are discussed. Next, a simulation model is described which uses all available information and judgments (actuarial, underwriting, claims, etc.) to produce pricing guidelines for the multiple-claimant occurrence exposure in these contracts. The steps required are presented, and an example is included in the paper to illustrate these steps. Finally, another application of the method is described which can be considered an enhancement to the present pricing procedures. As is stressed in the paper, this method does not produce an actuarially "correct" rate for each reinsurance contract; the very nature of the multiple-claimant occurrences makes this difficult. The method should be considered a framework for producing pricing guidelines which incorporates relevant data and judgments, and which introduces consistency to the pricing process.