Claims Development Schedules – What Should You Know?

Claims development schedules can be challenging to review and understand because they often contain multiple triangles of information. However, reviewing this information gives you an understanding of the premiums charged by accident year in relation to the total claim costs (incurred losses) associated with insuring those premiums. This information can be useful in setting policy rates and identifying trends associated with claims costs, such as increases in medical costs for workers’ compensation or health programs and replacement value cost for property programs.

Incurred Loss Table

Rather than try to absorb all the information in the claims development schedules at once, consider focusing on the incurred loss tables. Incurred losses are the total cost expected to be incurred based on the policies written during that accident year. It includes paid claims, case reserves and incurred but not reported (IBNR) reserves for the accident year. The incurred loss amount changes each year as the actuary performs a re-estimation of that accident year at the end of the current year. In the illustration below, accident year 2007 was estimated to incur $13,354,433 at the end of the 2007 policy year. Ten years later, the estimate decreased to $11,261,386. Therefore, accident year 2007 had favorable development over the 10 year period of $2,093,047.

What questions should I ask?

•  If incurred losses increase over the 10-year development or by underwriting year:
  • Inquire with your actuary to understand if costs are trending upward (medical, building, litigation)
  • Has there been an increase in overall exposures?
  • Has the company made changes to its claims reserving methodologies?
  • Is it just an anomaly based on a few large claims?
• If incurred losses decrease?
  • Has there been an increase in safety initiatives?
  • Have new wellness programs been instituted?
  • Has the company made changes to its claims reserving methodologies?
• Does the claim payout pattern match your investment maturities?
• Has the company changed its methodology for recording claims counts? notice of claim vs. reported claim for instance?
• Can the current premiums being charged support the rising claims costs?
• Can the company assess additional premiums based on adverse loss development?
• Does the company pay policyholder dividends only when there is favorable loss development?

As you think about these questions in relation to the information within your claims development schedules, reach out to others in your organization, including the actuary, claims department, underwriting or finance department for answers.

Claims development schedules can be overwhelming at first glance but knowing what questions to ask, and how to investigate trends or anomalies can help you isolate key pieces of data that could ultimately change your business approach for the better. The information in these schedules can provide valuable, cost-saving guidance that is not only company specific but also a roadmap to maximize profits.

Requirements by Financial Reporting Standards

• Governmental Accounting Standards (GASB) filers –

10-year revenue and claims development schedules by line of business included in audited financial statements as required supplemental schedules

• Statutory Accounting Principles (STAT) filers –

Schedule P contains revenue, claims incurred, paid and ending reserves by line of business

• Generally Accepted Accounting Principles (GAAP) filers –

Beginning in 2017, you must include claims development, paid and other information within your audited financial statements per ASU 2015-09