The core reading says:"an insurer will occasionally need to establish reserves where it is aware of future treatment that could persist over some future years" Can someone give me an example of when this may arise under PMI and how the reserving would work ?
An example might be someone who has a dodgy knee and needs an operation. The PMI policy might pay out for the operation and follow-up treatments eg physiotherapy (and maybe also subsequent operations). So the insurance company would pay out for the surgery and would then need to establish a reserve for the follow-up treatments (which could last for a number of years). If the insurer has enough data, then they could use standard triangles to project claims forward. If not, a case estimate method might be used, based on information such as: - specific knee condition - hospital - surgeon - age & sex of policyholder - etc.
