September 2012 question 1vii

[phos2]

In the examiners report it states:

Given the stated accelerated claims handling, the low 1.303 development factor is not what might be expected.
• The impact of the accelerated handling may be more prominent in the very early development months, and so not captured in the given data
• The impact of the accelerated handling may be offset by the increased payments due to volume or deterioration
• The influx of claims may have overwhelmed the claims staff and derailed the claims handling initiative

Surely a low development factor is exactly what we would expect with an increased settlement of claims? So the acceleration is having the desired effect? Not sure what they mean by "not what might be expected" - do they mean they expect the development factor to be even lower than 1.303 and if so, why?

Thanks

 

[Katherine Young]

In general, you'd think that a faster claims settlement would lead to a higher link ratio than was seen for previous accident years (for that given development period).

So they're saying that 1.303 looks low, and that it'd be easy to think it should be higher.

(Of course, it really depends where in the tail you're looking. Overall, if more claims settle earlier then there'll be fewer claims left to settle later, so a higher than average link ratio earlier on might imply lower than average link ratios further in the tail.)