Recent Trends in Workers Compensation Coverage

As a line of business, workers compensation has undergone many significant changes in the last few years. Key elements at the forefront of change include the following: Increased levels of retained exposure by employers; Rapid growth in managed care initiatives; and State enactment of comprehensive system reforms. Due to the above changes, actuaries involved in reserving workers compensation coverage will find it necessary to use new methodologies and assumptions to correctly estimate reserve levels because historical loss data may not accurately predict future cost levels and trends. When employers purchase large deductible insurance they retain the smaller more stable losses and leave the catastrophic exposures to the insurer. This creates increased severities, decreased frequencies and longer tailed reporting and payment patterns. Use of managed care techniques should decrease medical severities and should also decrease indemnity severities and will likely cause a shift in frequency among types of injuries. The impact of statutory benefit level reforms must be assessed before all affected claims are reported and settled. Thus the challenge will be to make well informed judgments as to the impact of such comprehensive changes on future reserve levels. The purpose of this paper is not so much to answer questions but rather to raise the types of questions the reserving actuary must ask in order to revise and revamp his or her approach to reserving workers compensation exposures. Keywords: Cost Containment