Claim Life Cycle Model
By applying predictive modeling techniques to individual claim transaction history, and then simulating future claim development and emergence, tremendous insights are generated for nearly all areas of actuarial practice.
A changing book of business can cause significant problems with traditional actuarial techniques. By modeling individual claim development, as a function of claim and exposure characteristics, these mix shifts can be identified earlier, and provide better estimates and insight into actuarial estimates of claim liabilities.
Identification of claims that have a greater potential to develop adversely can guide more efficient allocation of claim handling resources, and provide an objective benchmark against which to measure achieved outcomes.
This approach estimates losses at a policy level based on policy characteristics. Internal management reporting can use this highly detailed information to measure underwriting operations at any level of management and reward profitable underwriting.
Development of rates, whether using traditional techniques or predictive modeling typically makes broad-brush assumptions regarding loss development, that are rarely correct. CLCM corrects that serious problem.
The approach develops distributions of potential future results at the policy level. These can be aggregated at any level to help answer a wide variety of capital allocation and risk management questions.
Information by layer of loss is provided automatically for each policy. This makes it much easier to consider the attractiveness of different reinsurance structures by class of business and layer. The impact of mix shifts on the current book are illustrated, making the process valuable for Quota Share contracts as well.