2019 spring 14
For this problem, suppose the most recent year has seen a dramatic speed up in claims handling process for the smaller claims, wouldn't this also cause the average case O/S to increase? Because only the large claims are left open, so the average case O/S would naturally be larger. If this is logical, then the paid claims would actually have also increased, because more claims are paid out. So the ultimate estimate using paid development technique would be overstated. Could you please advise if this makes sense? Thank you.
Comments
That is a logical conclusion if we assume that the following are both happening:
You should be a little careful however because you don't have data on paid claims so you might not be able to conclude that paid claims have increased sufficiently to cause a material overstatement. The dollar value of the small claims may not be material relative to the remaining open large claims. Also, the examiners' report specifically mentions that you can't derive the paid claims triangle from the given data.
Your reasoning also didn't use the average reported claim data or trending. The question provided trend information so I believe the graders intended that to be part of your answer.
In general, in these types of problems where you have to evaluate the appropriateness of a certain method, the most straightforward explanations are:
If, however, the question provides further information on size of claims, then you could refine your answer to include something about how size of claims affects the method in question.
In conclusion, it's hard to say how your answer would have been graded. You should at least get partial credit for what you said, but I'm not sure you would get full credit.