Fall 2015 Q22 d)

judyohjudyoh
in F-15-Evaluation
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Does faster processing of claims = increased settlement rate? It has been my understanding that an increase in settlement rate does not affect reported data. In what cases does claim settlement impact reported loss data and how? Why is it that in this case, reported losses are affected, but in some other exam problems, closing claims quickly does not affect reported loss data?

Comments

  • GrahamGraham
    edited August 2023

    Yes, faster processing means increased settlement rate. But that comment in the examiners' report is not entirely correct:

    • If the only change is that claims are processed faster then only the paid triangle will be affected. And the statement of the question only specified that claims are processed faster so I do think it was reasonable to assume that only the paid triangle was affected.
    • But it's also true that when claims are paid, the payment is often for more than the original reserve, in which case the reported triangle would also show more development at an earlier maturity but none of that is mentioned in the problem.

    I think it was unfair for the examiners' report to say it wasn't reasonable to assume only paid data would be affected. Nonetheless, the graders apparently gave full credit if you simply stated that the development method would overestimate and then recommended using the B-S method, without having to specifically mention the effect on paid or reported data separately.

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