Preparing For An Actuarial Review

Actuarial reviews by their nature require a large volume of data. Many consumers of actuarial services fear that when they contract for actuarial services, they are accepting an overwhelming work assignment of their own—the assignment of data gathering.

Data gathering does not have to be burdensome. In fact, most of the data gathering tasks can be safely delegated to other vendors providing services to your company (e.g. the TPA, claims examiners, auditors, etc.). Typically vendors satisfy actuarial data requests for their clients for no additional charge.

The data required by HB Actuarial Services to perform an actuarial review falls into three categories: 1) data provided by the client, 2) data provided by the client’s vendors on behalf of the client, and 3) industry and economic data publicly available from various data gathering agencies (e.g. rating bureaus, census bureau, state and federal agencies, industry organizations, etc.) We have found that the vast majority of required data comes from data providers in categories 2 and 3. HB Actuarial Services identifies the client’s data needs and obtains data from these sources without any effort on the client’s part.

The initial data request that an actuary prepares for a “standard” actuarial review is fairly similar for all actuarial service providers. A sample data request is displayed below:

HB Actuarial Services requests that you provide the following information to us relating to your Workers' Compensation, General Liability, and Auto Liability exposure. This information will be used to perform an actuarial analysis of Client ABC's self-insured liabilities.

• Electronic files containing claim information for Client ABC. These claim files should contain the following data elements:
• Accident date
• Type of claim (workers' compensation / general liability / auto liability)
• Claim identification number (to track the development of claim payments over time)
• Date claim was reported
• Total indemnity payments to date
• Open / closed claim indicator
• Outstanding indemnity payments
• Total medical payments to date
• Outstanding medical payments
• Total claim settlement expense to date (ALAE)
• Outstanding claim settlement expense

Medical payments need to be segregated from indemnity payments for workers' compensation claims only. The claim files should include all claims filed (whether open or closed, with or without claim payments) with Client ABC, and one “snapshot” of claim information file should be provided for at least each of the five most recent valuation dates.  A valuation date is the date (typically a “year-end date) on which the snapshot of claim information was taken. All information is complete and up to date as of this date; however, once the "snapshot" is taken, none of the data in this file should be adjusted. In order to reduce expenses, this claim information should be stored electronically.

An additional benefit that Client ABC will enjoy from gathering these data snapshots is that, over time, Client ABC will learn of any biases to its reserving practices (i.e. underreserving or overreserving). Once reserving biases are identified, they can be corrected.

• A copy of the workers compensation experience rating worksheets produced by NCCI for each of the past three years.
• A copy of the experience rating worksheets produced by ISO for each of the past three years.
• Payroll by workers' compensation classification code exposed to insurable losses for Fiscal Years (FY) 1996 to 2003 (estimates for future FY).
• A discussion of any changes in services provided by Client ABC between FY 1996 and FY 2003.
• The number of motorized vehicles operated by Client ABC for Fiscal Years (FY) 1996 to 2003 (estimates for future FY).
• A discussion of any other issues that may differentiate Client ABC's claim costs from other entities of a similar size.
• A discussion of any business conditions that may have changed (or are anticipated to change) Client ABC's ability to control claim costs between FY 1996 and FY 2003.
• A discussion of any business conditions that may have changed (or are anticipated to change) the speed in which Client ABC pays claims between FY 1996 and FY 2003.
• A discussion of any changes in claims administration that may change (or are anticipated to change) the claim settlement expenses included in the electronic data requested in item #1.
• Any other information that you believe should be considered when making an actuarial projection of outstanding claims.

If you do not have all of the requested data readily available, please identify those data elements that may be difficult to provide so we can identify alternate data sources / methodologies that will allow us to perform the required analysis.

Typically items #1, through #4 are provided by outside service providers to the client. Information for items #5 through #11 are gathered through the interview process that HB Actuarial Services performs at the beginning of each assignment. The data provided through this request is supplemented with outside data sources as needed.

In our work with clients, we have found that the data gathering process is less burdensome for clients that they previously expected. We do note, however, that clients who have not performed an actuarial review in several years tend to spend a little more time in the data gathering process than others. Subsequent actuarial reviews require less effort.

Actuarial reviews do require a large volume of data—there is no way around that. The data-gathering task does not have to be daunting for the client, though. Most of the necessary data can be compiled by the actuary or by other vendors.  The data elements listed in items #1 through #11, above are adequate to prepare most standard actuarial reviews.