Tag Archives: claims

Employment practices liability considerations in the #MeToo generation

Public attention from U.S. athletes and celebrities and movements like #MeToo and #TimesUp have drawn increased awareness of—and action around—sexual harassment.

As employers work to improve existing sexual harassment training and policies, they continue to find themselves dealing with the repercussions of past incidents, often through lawsuits or insurance claims that are typically covered under their employment practices liability (EPL) policies. These policies provide employers with liability insurance covering wrongful acts arising from the employment process, one of the most common of which is sexual harassment.

When pricing for an EPL policy, actuaries typically use historical claims experience to predict the emergence of claims in the future. Similarly, actuaries estimate incurred but not reported reserves on existing claims to account for growth in the claim value expected above that contemplated in the claims adjusters’ case reserves. To the extent that trends in claim frequency and severity are changing, the historical claims experience may no longer be an accurate predictor of future claims experience. It is essential for companies writing these policies to consider this level of uncertainty in their estimates.

Legislative changes are also introducing a level of uncertainty to claims that may affect pricing and reserving in the future. And now more than ever, companies must find the right balance of coverage and retention limits as well as establish a plan and budget for prevention. This includes sexual harassment training, policy establishment, and enforcement. With this evolving climate, it is also essential for employers to closely monitor their EPL coverage.

To read more about the current state of EPL in the age of #MeToo, read Maigh Wright’s article here.

How can advancements in predictive analytics help identify reinsurance workers’ comp claims early?

Developments over the past few years in predictive analytics are providing opportunities to improve the early identification of claims with a higher likelihood of piercing workers’ compensation reinsurance layers. Over the past decade or so, the field of claim analytics has moved from performing forensic work on closed claims to analytics that can identify at 60 days from the date of injury (or sooner) claims with a high likelihood of exceeding a retention level.

While an excess loss is obvious for some catastrophic claims, the buildup to the attachment point is less obvious for many excess loss claims due to the subtleties of compounding factors. A significant challenge with early identification analytics for claims that have not reached an excess loss attachment point is that the administration of the claim is often handled by several specialists without any single participant noticing the aggregation of costly factors.

A recent development in predictive analytics is the use of machine learning software that extends the principles of conventional multivariate analyses. In contrast to the conventional analyses, these advanced analytic methods are not limited to linear relationships. Another development is the extraction of text information from claim adjusters’ notes, nurse care manager reports, and medical reports.

The advances with machine learning software and text mining algorithms are necessary tools for the early identification of claims most likely to become excess loss claims. To learn more about how analytics has affected the early identification of claims, read this article by Lori Julga and Phil Borba.

MillimanMAX, a Milliman predictive analytics platform, renamed “gradient A.I.” to reflect advanced analytic techniques

Milliman has announced the launch of gradient A.I. (formerly MillimanMAX), an advanced analytics platform that uncovers hidden patterns in big data in order to improve workers’ compensation claims management. The gradient A.I. platform is a transformative InsurTech technology built on the latest advanced techniques and artificial intelligence (A.I.), and delivers a daily decision support system (DSS) for insurers and self-insurers.

Milliman has been conducting research and development in the most advanced areas of artificial intelligence—also known as “deep learning”—for over five years, and the rebranding of gradient A.I. is a reflection of that enhanced experience. Our goal with gradient A.I. is to deliver the most actionable intelligence to our clients in the form of “decision support—and we’re pleased to note that so far clients have seen underwriting profit improvements of 3% to 5% and claim cost reductions in the neighborhood of 5% to 10%.

The key differentiator of gradient A.I. is its ability to identify relationships between structured and unstructured data, unlocking powerful and previously unknown information to deliver a competitive advantage to self-insured groups, carriers, and third-party administrators within the property and casualty (P&C) market. Additional product features include a custom data warehouse, easily identifiable and actionable risk drivers, dynamic reporting, and customizable reports and dashboard.

To learn more, click here.

Assessing construction defect costs when claims start to build

Claims related to construction defects are usually reported years after a home is completed. As new housing continues to grow, it’s probable that the number of construction defect claims will also grow in the near future. That scenario should impel home builders, contractors, and insurers to assess their potential construction defect losses in advance.

In his article “Analyzing construction defects: Practical considerations,” Milliman’s Jamie Shooks details the following items stakeholders should consider when estimating the total costs of construction defects:

• Geography
• Type of insured: Subcontractor versus general contractor or developer
• Additional insured versus named insured
• Wrap and non-wrap policies
• Attached versus detached housing
• Community/home type
• Alternative fee arrangements
• Frequency and severity by report lag
• Evolving litigation
• Report year versus accident year analysis
• Use of predictive analytics

Capabilities of predictive analytics increase as technology advances

Today actuaries and insurers are able to apply predictive analytics in novel ways because of advanced technologies, larger data sets, and increased computing power. A recent Risk & Insurance article featuring Milliman’s Peggy Brinkman and Phil Borba explores four key areas where advances in predictive analytics are changing the way insurers conduct business: claims, driving safety, property risk, and competitive rating.

28 claims later

Carbone-William“If you are generally well equipped to deal with a zombie apocalypse you will be prepared for a hurricane, pandemic, earthquake, or terrorist attack.” – Dr. Ali Khan, Director, Office of Public Health Preparedness and Response.

The U.S. Centers for Disease Control and Prevention (CDC) has provided guidance for surviving a zombie apocalypse in order to promote preparedness. Can looking toward the circumstances of a zombie-infested world teach us what issues may arise in the insurance industry as well? While the reality the Grimes gang of “The Walking Dead” lives in is rather bleak, we can consider the insurance implications on a relatively smaller, World War Z-style outbreak (the Max Brooks novel, not the Brad Pitt star vehicle).

Health or life insurance: Who pays?
One of the first issues to consider is whether zombies are the “living dead” or the “undead.” To the average person this may seem like a simple case of semantics. However, in the insurance arena, this question could spark a serious debate between health insurers and life insurers.

From one perspective, health insurers will not want to cover the recently reanimated “undead,” who could incur great medical costs, assuming zombies seek medical attention. Considering the limited earning potential of those without functioning cognitive ability and insurers’ inability to deny coverage for preexisting conditions, the majority of zombies will likely look to Medicaid or to subsidized policies sold on a state exchange for coverage. These choices will lead to even more uncertainty (and possibly morbidity) for health insurers surrounding the demographics of the expanded Medicaid population. Of course, given that zombies are unlikely to visit a hospital—unless they are looking for a meal—there might be a dearth of claims, making zombies the next best thing to the “young invincibles” who are coveted members of a health plan’s risk pool.

On the other hand, life insurers will push to delay the time of death to increase the investment income on their policies. In all likelihood, the courts will be asked to decide when health insurance coverage ends and life insurance is paid. As Clarence Borel’s case set a precedent for all future asbestos claims, a landmark decision clearly defining what is meant by “time of death” may set a precedent that will be followed by both health and life insurers.

What happens when you’re overrun (by claims)
If it is decided that zombies are the “living dead,” life insurers will be required to pay benefits for reanimated corpses. This is an example of pandemic risk for life insurers, as a significant outbreak would likely cause an extreme mortality event. Events like these will obviously increase the number of claims, but could also increase asset risk through capital market instability and personnel risk as staffing levels are affected because of illness, quarantine, or evacuation. Life insurers will need to properly prepare for extreme mortality risk through a risk management program and appropriate risk mitigation. Although the likelihood of an extreme mortality event caused by a zombie uprising is remote, such events can also be brought on by infectious disease, war, terrorism, and natural catastrophes.

Exclusions: Cause and effect
As zombie hordes begin to roam the country, homeowners policies will need to be adjusted. Most homeowners policies cover damages caused by vandalism; but will damages caused by a mob of the undead be covered? If asbestos, pollution, and flood losses are an indicator, it is likely that zombie damage exclusions will be created to reduce homeowners policies’ exposure to these unique, but substantial, losses. Will policyholders, for instance, need to prove that the proximate cause of the damages was a looting mob rather than an undead one?

In the aftermath of Hurricane Katrina, the legal landscape was filled with battles over the “efficient proximate cause” of damages, requiring losses that were due to an excluded peril to be covered if the cause of the excluded peril was a covered peril, such as a windstorm leading to flooding or mold. Would zombie damage be covered if they followed looters into your home? Conversely, would damages from a covered peril be denied if the proximate cause was an excluded peril, such as a fire stemming from damages caused by a zombie?

Walkers: Can you blame them?
If zombies are considered the “undead,” they (or their lawyers) may be able to bring slip-and-fall lawsuits against property owners. While the biggest impact of these claims would be on the frequency and severity statistics of general liability books, the more interesting aspect is the state-by-state variation in comparative and contributory negligence laws. Without considering whether a zombie has the mental capacity to act reasonably, we assume that the courts will find them, to some degree, responsible for their own injuries. This decision would preclude the “undead” from collecting in a contributory negligence jurisdiction, where the plaintiffs cannot collect if they are deemed to be in any way responsible for their own injuries.

However, in comparative negligence states, the distinction between pure comparative and modified comparative negligence laws will create significant differences in potential losses. Consider a scenario where zombies are deemed 75% responsible for their injuries. In a pure comparative negligence jurisdiction, they would be able to collect 25% of the total loss; however, in a modified jurisdiction, they would not be able to collect any damages. It would be reasonable to speculate that insurers with significant exposure in pure comparative states would either lobby for a change to modified comparative negligence laws, or decrease writing in pure comparative states.

While we can see the insurance issues surrounding a zombie apocalypse have real world connections, we have not considered the potential work that can be done to manage the associated risks. The effects of population density on catastro-Z modeling are particularly concerning. And how do we put a dollar value on the remaining “life” of a zombie, anyway? For now, we’ll leave that research to the survivors.