Friedland02.ClmsProcess

Reading: Friedland, J.F., Estimating Unpaid Claims Using Basic Techniques, Casualty Actuarial Society, Third Version, July 2010. The Appendices are excluded.

Chapter 2: The Claims Process

Study Tips

If you've been working at an insurance company for a few years then much of this chapter covers material you already know. The 2 items to pay close attention to are:

• 5 elements of the unpaid claim/loss estimate
• formula for reported claims/losses

Aside from that, the wiki provides a brief summary of each subsection with the chapter. If you want more detail, you can use the source text for bedtime reading.

Estimated study time: 1 hour (not including subsequent review time)

BattleTable

• this reading has not been tested on any exam from the year 2012 and subsequent

reference	part (a)	part (b)	part (c)	part (d)
no prior questions

In Plain English!

5 components of the total unpaid claim estimate

Further down I've listed the 5 components as they are listed in the source text but Alice-the-Actuary has a tip for you.

Alice's tip: Usually, we work with only with 2 components: case O/S and IBNR.

• Case O/S is just a short way of writing Case Outstanding. It's also referred to as Case Reserves. The definition is given in the next subsection.
• IBNR is a short way of writing Incurred But Not Reported.

And here's a nifty formula that will be mega-useful:

Alice's mega-useful formula:    total unpaid   =   Case O/S   +   IBNR

But note that the IBNR in Alice's formula is not quite the same as the IBNR defined below. Strictly speaking, the term IBNR as used above is really the sum of:

• IBNER or Incurred But Not Enough Reported
• IBNYR or Incurred But Not Yet Reported

As an example:

• Now let's say the accident occurs on July 1, but it isn't until on July 5 that the accident is reported and claims adjuster puts up a case O/S of $1,000. Then from July 1 to July 4, there would be $1,000 of IBNYR.

• If the the claim is eventually settled for $1,400 on July 20, then there would $400 of IBNER from July 5 to July 20. That's because the original case O/S was not enough by $400.

Case outstanding

Case outstanding (also called case reserves) is estimated by the claims adjuster. It is:

• the estimated amount the claimant will be paid to settle this particular claim

This amount is rarely accurate for individual claims.