Travelers 2013 Annual Report Download - page 157

• Changes in the interpretations and processes of the administrative bodies that oversee workers’
compensation claims
• 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
General workers’ compensation risk factors
• Frequency of claim reopenings on claims previously closed
• Mortality trends of injured workers with lifetime benefits and medical treatment
• Degree of cost shifting between workers’ compensation and health insurance, including
Medicare, and the impact, if any, of the Affordable Care Act.
Workers’ compensation book of business risk factors
• Product mix
• Injury type mix
• Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a
change in one or more risk factors could have on reserves for workers’ compensation, a 1% increase
(decrease) in incremental paid loss development for each future calendar year could result in a 1.3%
increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine
years has varied from 2% to 1% (averaging 0%) for the Company, and from 1% to 2% (averaging
0%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on,
observed events during the year. The Company believes that its range of historical outcomes is
illustrative of reasonably possible one-year changes in reserve estimates for this product line. Workers’
compensation reserves represent approximately 35% of the Company’s total claims and claim
adjustment expense reserves.
The Company’s change in reserve estimate for this product line was 1% in 2013, 2% in 2012
and 0% for 2011. The 2012 change was primarily driven by better than expected frequency and severity
related to lifetime medical claims for accident years 2008 and prior.
147