When a workers' compensation self insurer looks at how their outstanding liabilities are growing, there is a tendency to think in terms of trends in the number of claims (incidence) or average claim cost size (severity). However, modern accounting standard changes in how the discount rate is set can have a surprising impact, as do extra large claims and finalisation rates.
It is even more complex to interpret than this. The observed deviations can be no more than the operation of pure chance - either good or bad. At NetActuary, we have made a standard part of our work and discussion with self insurer clients a Monte Carlo simulation to quantify the inherent aggregate outcome volatility for no change in the underlying distributions.
At NetActuary, we focus on providing self insurer actuarial services to the Western Australian and Tasmanian markets.
The number of long duration claims in WA has been climbing. Much of the stability of the average premium rate could be subscribed to the powerhouse growth in employment numbers and gross wages. Lower growth rates in the short term will have an impact on workers' compensation experience.
Workers' compensation premium rates are lower than the suggested rates, but have increased as a percentage of wages over the past 5 years from 1.49% of wages to 1.92%. The number of claims (in absolute terms) has been decreasing quite sharply, but total payments are 9% more in 2012-13. The Tasmanian economic situation is the opposite to that of WA, and this state has experienced a recession in the period plus the closure of some significant employers.
The NetActuary Team