Fall 2019 #20
The question states that there was a court decision that will increase future payments by 20% and in the solution (as well as in the practice problems you made) the court decision is only adjusted at the end once we have calculated the trended counts and trended severities.
Would it also be acceptable to adjust the incremental paid loss triangle before calculating the IPS triangle? Basically I increased all the historical incremental paid losses by 20% and then continued with the steps of the claims disposal method. I didn't get to the same answer so I was wondering if this would be accepted or the court decision should really only be applied at the end.
Thank you!
Comments
You increased the wrong quantity. The court decision says that future payments will increase and future payments are represented by the unpaid amounts. So it's the unpaid amounts in the final step that need to be increased by 20%. (By doing what you did, you were retroactively increasing payments by 20%, which could happen, but here you were not told to apply the decision retroactively.)
Note that there was an exam problem (can't remember which one) where you did have to adjust the paid loss triangle to incorporate a court decision but in that problem the given paid loss triangle was unadjusted.