Travelers 2014 Annual Report Download - page 148

Table of Contents
2011 and 2012. The 2012 change reflected higher than expected severity in the bodily injury coverage primarily for accident years 2010 and 2011.
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 tails,
the reporting lags are generally short, settlements are generally not complex, and most of the liability can be considered high frequency with
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, as such claims are subject to greater inflation risk. 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, or perceptions thereof, that could change and, thus, affect the required workers' compensation reserves
(beyond those included in the general discussion section) include:
Indemnity risk factors
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Time required to recover from the injury
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Degree of available transitional jobs
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Degree of legal involvement
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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
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Changes in the cost of medical treatments (including prescription drugs) and underlying fee schedules ("inflation")
•
Frequency of visits to health providers
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Number of medical procedures given during visits to health providers
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Types of health providers used
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Type of medical treatments received
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Use of preferred provider networks and other medical cost containment practices
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Availability of new medical processes and equipment
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Changes in the use of pharmaceutical drugs
•
Degree of patient responsiveness to treatment
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