The National Council on Compensation Insurance (NCCI) has released a new study, "Workers Compensation Excess Loss Development," which adds 4 calendar years of large loss experience to a similar 2007 paper.
Large loss and excess development is relevant to calculating excess loss factors used in retrospective rating. As part of its review of excess loss factors, NCCI looked at excess loss development nationwide as it relates to large deductible policies, state lump-sum settlement rules, and state excess loss factors (ELFs) at a $1-million limit.
NCCI notes that, as in the original study, this update reveals that patterns of excess loss development are sometimes the opposite of intuitive. Higher excess layers sometimes had lower development factors than lower excess layers; states allowing lump-sum settlement of medical benefits had higher excess development factors than states allowing only indemnity benefits to be settled in lump sums.
Key findings from the 2011 report show:
- Claims over $5 million were more likely to develop down than up through 26 years of development. In contrast, claims of about $1 million to $2 million were more likely to develop up than down through 26 years.
- Claims under large deductible policies had significantly more development in the excess layers than claims under other policies (ground-up or small-deductible policies).
- States allowing medical lump-sum settlements had more development for high excess layers than states that do not allow medical lump-sum settlements.
- No clear and credible differences in development were observed between the states relative to their ELFs at a $1-million limit.
Most of the excess loss development patterns in the study are derived from claim information reported in NCCI's "Call 31: Large Loss and Catastrophe Claims." Under this Call, initiated in 2003, carriers report information annually on every claim for injuries occurring in 1984 or later where the case-basis incurred value of the claim is at least $500,000.
This latest report includes a comparison of Call 31 data to a Reinsurance Association of America (RAA) paper, "Historical Loss Development Study." NCCI notes that while the RAA data is systematically different from Call 31 data, the instances where it shows that development factors decrease for higher attachment points is consistent with a key finding from Call 31 data.
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