Using Claim Department Work Measurement Systems to Determine Claim Adjustment Expense Reserves
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Using Claim Department Work Measurement Systems to Determine Claim Adjustment Expense Reserves 1999 Casualty Loss Reserve Seminar Joanne S. Spalla, FCAS, MAA
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Using Claim Department Work Measurement Systems to Determine Claim Adjustment Expense Reserves. 1999 Casualty Loss Reserve Seminar Joanne S. Spalla, FCAS, MAA. Popular ULAE Methods. Paid-to-Paid Methods Methods Based on Claim Reporting and Closing Patterns (The Johnson Method) - PowerPoint PPT Presentation
Transcript of Using Claim Department Work Measurement Systems to Determine Claim Adjustment Expense Reserves
Using Claim Department Work Measurement Systems to Determine Claim Adjustment Expense Reserves
1999 Casualty Loss Reserve Seminar
Joanne S. Spalla, FCAS, MAA
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Popular ULAE MethodsPopular ULAE Methods
Paid-to-Paid Methods Methods Based on Claim
Reporting and Closing Patterns (The Johnson Method)
Transaction-Based Methods
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Definition of LAEDefense & Cost Containment (DCC)
Fees or salaries for appraisers private investigators hearing representatives reinspectors fraud investigators rehabilitation nurses,
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Definition of LAEDefense & Cost Containment (DCC)
Surveillance expenses Medical cost containment expenses; Litigation management expenses; LAE for participation in voluntary and involuntary
pools if reported by accident year; Attorney fees incurred owing to a duty to defend The cost of engaging experts.
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Definition of LAEAdjusting & Other (AO)
Fees of adjusters and settling agents LAE for participation in voluntary and involuntary
market pools if reported by calendar year Attorney fees incurred in the determination of
coverage, including litigation between the insurer and the policyholder
Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in the capacity of an adjuster.
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Steps in Performing a Claim Steps in Performing a Claim Department StudyDepartment Study
1. Collect Duration of Claim Transactions by Position
2. Determine Raw Costs by Multiplying Durations by Average Costs for Each Claim Position
3. Load Standards for Unrecorded Time
4. Divide Costs by Claim Volumes to Determine Average Cost
5. Load Standards for Other Field Office Claim Overhead
6. Load Standards for Home Office Overhead
Example:Example:
Monthly Intake Cost:
Workers Compensation
Lost Time Claims
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Step 1Step 1::Durations by Claim PositionDurations by Claim Position
Number of Hours
Inside Claim Representative 387.54Outside Claim Representative 74.22Clerical 129.89Supervisor 112.05Claim Processor 122.04
Total 825.75
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Step 2Step 2::Determine Raw CostsDetermine Raw Costs
(1) Number of Hours 387.54
(2) Hourly Cost 29.95$
(3) Total Recorded Cost = (1)/(2) 11,607
Inside Claim Representative
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Example:Example:Inside Claim RepresentativeInside Claim Representative
Salary & Benefits 20,827 Auto - Travel - Other 7,021 Total Expenses 27,848
Expenses ($000)
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Example:Example:Inside Claim RepresentativeInside Claim Representative
Number of Staff 513# Hours per Week 36.25# Weeks 50
Available Hours 929,813
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ExampleExample::Inside Claim RepresentativeInside Claim Representative
Total Expenses 27,848
Available Hours 929,813
Average HourlyCost 29.95$
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Step 3Step 3::Load Standards for Unrecorded Load Standards for Unrecorded TimeTime
(1) Total Recorded Cost 11,607
(2) Percent of Total TimeRecorded at Claim Level 66.6%
(3) Total Costs Grossed Upfor Unrecorded Time = (1) / (2) 17,428
Inside Claim Representative
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Step 4Step 4::Average Intake Cost per ClaimAverage Intake Cost per Claim
Total Costs Grossed Up for Unrecorded TimeInside Claim Representative 17,428Outside Claim Representative 4,683Clerical 10,153Supervisor 6,325Claim Processor 4,229
Total 42,818
Number of Intake Claims 585Average Intake Cost per Claim $73.19
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Average Intake CostAverage Intake Cost
(1) (2) (1) / (2)Total Costs Average
Grossed Up for Number Cost perUnrecorded of Intake
Time Claims ClaimOffice #1 42,818 585 73.19$ Office #2 39,292 304 129.25$ Office #3 34,194 654 52.28$ Office #4 86,259 650 132.71$ Office #5 70,942 452 156.95$
Total 273,505 2,645 103.40$
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Steps 5 & 6Steps 5 & 6::Load Standards for OverheadLoad Standards for Overhead
Intake
Claim Study Costs Excl. Field Overhead $103.40Field Office Overhead 1.555Standards Including Field Overhead $160.84Home Office Overhead 1.383Fully Loaded Standards $222.42
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WC Lost TimeWC Lost TimeMonthly Standards Including OverheadMonthly Standards Including Overhead
Intake $222.42Outstanding 31-90 Days $111.56Outstanding 90 Days - 60 Mos. $49.80Outstanding > 60 Months $17.00
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Practical ConsiderationsPractical Considerations
Scope Duration Credibility Adjusting the Data for Anomalies Participants in the Study
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Practical ConsiderationsPractical Considerations
Changes in Claim Department Work Flow
Workers’ Compensation Claims Greater Than 60 Months Old
Final Validation Adjusting for Inflation and Trend
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Validation of StandardsValidation of Standards
Standard Indicated# Claims Cost Costs
WC Intake 500 $222.42 111,208O/S 5,000 $56.66 283,291
Auto Intake 1,000 $150.00 150,000O/S 4,000 $25.00 100,000
Total Indicated Costs 644,499
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Validation of StandardsValidation of Standards
Indicated Costs 644,499
Actual Cost 613,809
Adjustment Factor 1.05
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Calculating the ReserveCalculating the Reserve
1. Project Ultimate Claim Counts
2. Project Outstanding Claim Counts
3. Project Future Expense per Outstanding Claim
4. Calculate Future Claim Adjuster Expenses
5. Determine Reserve for Reported Claims
6. Determine Reserve for IBNR Claims
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Other ApplicationsOther Applications
Allocation of Claim Adjuster Expense Allocation of Adjusting and Other
Expense Payments in Schedule P Pricing Claim Service Claim Department Expense Planning,
Monitoring and Control
