Travelers 2004 Annual Report Download - page 112

Commercial automobile book of business risk factors
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
Changes in mix of insured vehicles (e.g., long haul trucks versus local and smaller vehicles, fleet risks versus
non-fleets)
Changes in underwriting standards
Workers’ Compensation
Workers’ compensation is generally considered a long tail coverage, as it takes a relatively long period of
time to finalize claims from a given accident year. While certain payments such as initial medical treatment or
temporary wage replacement for the injured worker are made quickly, some other payments are made over the
course of several years, such as awards for permanent partial injuries. In addition, some payments can run as long
as the injured worker’s life, such as permanent disability benefits and on-going medical care. Despite the
possibility of long payment tail, the reporting lags are generally short, settlements are generally not complex, and
most of the liability can be considered high frequency, moderate severity. The largest reserve risk generally
comes from the low frequency, high severity claims providing lifetime coverage for medical expense arising
from a worker’s injury. Overall, the claim liabilities for this line create a somewhat greater than moderate
estimation risk.
Workers’ compensation reserves are typically analyzed in three components: indemnity losses, medical
losses and claim adjustment expenses.
Examples of common risk factors that can change and, thus, affect the required workers’ compensation
reserves (beyond those included in the general discussion section) include:
Indemnity risk factors
Time required to recover from the injury
Degree of available transitional jobs
Degree of legal involvement
Changes in the interpretations and processes of the workers’ compensation commissions’ oversight of claims1
Future wage inflation for states that index benefits
Changes in the administrative policies of second injury funds
Medical risk factors
Changes in the cost of medical treatments (including prescription drugs) and underlying fee schedules
(“inflation”)
Frequency of visits to health providers
Number of medical procedures given during visits to health providers
Types of health providers used
Type of medical treatments received
Use of preferred provider networks and other medical cost containment practices
Availability of new medical processes and equipment
Changes in the use of pharmaceutical drugs
Degree of patient responsiveness to treatment
1These are administrative bodies that evaluate whether or not a given claim for workers’ compensation
benefits is valid. Duties include the determination of whether a given injury arose out of the scope of
employment, or the determination of the degree of injury where disputes exist.
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