Book contents
- Frontmatter
- Contents
- Preface to first edition
- Preface to second edition
- 1 Introduction and mathematical preliminaries
- 2 Elementary probability
- 3 Random variables and their distributions
- 4 Location and dispersion
- 5 Statistical distributions useful in general insurance work
- 6 Inferences from general insurance data
- 7 The risk premium
- 8 Experience rating
- 9 Simulation
- 10 Estimation of outstanding claim provisions
- 11 Elementary risk theory
- References
- Solutions to exercises
- Author index
- Subject index
10 - Estimation of outstanding claim provisions
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface to first edition
- Preface to second edition
- 1 Introduction and mathematical preliminaries
- 2 Elementary probability
- 3 Random variables and their distributions
- 4 Location and dispersion
- 5 Statistical distributions useful in general insurance work
- 6 Inferences from general insurance data
- 7 The risk premium
- 8 Experience rating
- 9 Simulation
- 10 Estimation of outstanding claim provisions
- 11 Elementary risk theory
- References
- Solutions to exercises
- Author index
- Subject index
Summary
Summary. Several statistical methods have been devised in recent years to estimate the provisions required for outstanding claims. In this chapter, we describe two of these methods. We also outline a method for estimating incurred but not reported claims (IBNR).
Delays in claim reporting and claim settlement; run-off
The settlement of claims is always subject to delay, and it is necessary for the insurer to set up provisions for claims in respect of losses which have been incurred by the insured during the period of cover but which have not yet been settled. There are two main types of delay:
delay in claim reporting;
delay in claim settlement;
and the lengths of the delays vary enormously according to the class of business. In the case of damage-only business for heavy commercial vehicles, claims are notified almost immediately and settled soon after. (A delay of several months would be exceptional.) Many employer liability claims, on the other hand, are not reported until years have elapsed, and the time to settlement of some which are notified almost immediately may be 15 years or more.
The traditional method of estimating provisions for claims which have been reported but not yet settled is for individual estimates to be made in respect of all known outstanding claims at the accounting date. These individual estimates are made by the claims staff who are expected to take into account
the severity of the claim;
the likely time to settlement;
inflation between the accounting date and settlement;
trends in claim settlement.
- Type
- Chapter
- Information
- Introductory Statistics with Applications in General Insurance , pp. 206 - 242Publisher: Cambridge University PressPrint publication year: 1999