Travelers 2005 Annual Report Download - page 129

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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
claims(1)
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
(1) These are administrativebodies 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.
General workers’ compensation risk factors
Frequency of claim reopenings on claims previously closed
Mortality trends of injured workers withlifetime benefits and medical treatment
Degree of cost shiftingbetween workers’ compensationand health insurance
Workers’ compensation book of business risk factors
Product mix
Injury type mix
Changes in underwriting standards
Fidelity and Surety
Fidelity is generally considered a short tail coverage. It takes a relatively short period of time to
finalize and settle fidelity claims. The volatility of fidelity reserves is generally related to the type of
business of the insured, the size and complexity of the insured’s business operations, amount of policy limit
and attachment point of coverage. The uncertainty surrounding reserves for small, commercial insureds is
typically less than the uncertainty for large commercial or financial institutions. The high frequency, low
severity nature of small commercial fidelity losses provides for stability in loss estimates whereas, the low
frequency, high severity nature of losses for large insureds results in a wider range of ultimate loss
outcomes. Actuarial techniques that rely on a stable pattern of loss development are generally not
applicable to low frequency, high severity policies.