Workers Compensation Excess Development

Posted Date: Winter 2007

View the complete report: Workers Compensation Excess Development (PDF)

View the Appendix: Workers Compensation Excess Development—Appendix (PDF)

In a new research study, NCCI examines workers compensation large loss and excess development patterns, which are relevant to pricing excess insurance and reinsurance, pricing large deductibles, and estimating tail factors.

These development patterns have a number of interesting characteristics.

For large claims reported to NCCI:

  • Total loss amounts and numbers of claims in excess layers tend to develop upward overall.
  • The very largest claims, on a case-incurred basis, are more likely to drop significantly than to increase
  • Case-incurred excess and large claim count excess development factors do not always increase as the attachment point increases.
  • Case-incurred excess development patterns vary significantly by calendar year. Case-incurred development for higher layers beyond six years was lower in Calendar Years 2004 and 2005 than in earlier calendar years.

Most of the excess loss development patterns presented in this report are derived from claim information reported to NCCI in Call 31. Under this Call, carriers report annually certain data elements for every claim for injuries in 1984 or later when the case-basis incurred value of the claim is at least $500,000. We have trended these claims by 3% and 5% per year on an accident year basis for the analysis.

Every two years, the Reinsurance Association of America (RAA) publishes a loss development study, which includes several workers compensation loss development triangles. This report briefly compares the patterns seen in the Call 31 data to those in the RAA study. In contrast to Call 31 development patterns, for data reported to the RAA, case-incurred development factors mostly increase with increasing attachment point.