Statistical Case Estimation

Abstract

The paper is concerned with loss reserving at the individual claim level (also referred to as micro-reserving or granular reserving) in the context of workers compensation, or similar income replacement insurance. The individual claim reserve is constructed on the basis of detailed information, specific to the claimant and the circumstances of the claim.Claim costs for this type of insurance occur within a number of distinct types, e.g. income replacement, medical, legal, etc. Liability in respect of a single claim is estimated separately for each of the major types. The different types involve different modelling issues. For example, income replacement benefits depend on survivorship in the state of incapacity, while the flow of medical benefits is also heavily dependent (though differently) on whether or not the claimant is incapacitated.A major issue in modelling incapacity survivorship is that an individual may make multiple transitions between incapacity and recovery in the course of a single claim. The sequence of these transitions is not necessarily Markovian, and this leads to complexity in modelling and forecasting. A solution is suggested.