Product Update

Claims Cost Indexes Updated in Risk Financing

This release's issue of Risk Financing Perspectives includes the most recent updates to the Willis Towers Watson Claims Cost Indexes (also known as U.S. claims cost indexes) found in Appendix F. These are the same family of price indexes for major lines of insurance written by property and casualty insurers originally referred to as the "Masterson Indexes," named after the consulting actuary who developed them in the 1960s, Norton E. "Doc" Masterson. The indexes provide a measurement of inflation specific to the risks contemplated by individual lines of insurance such as workers compensation or automobile liability. They allow users to make adjustments to historical loss data in order to account for inflation. The recent updates indicate claim cost severity greater than general inflation rate. They were published in Willis Towers Watson Insights (October 2017) in a discussion by Jeremy Pecora and Emily Thompson, consulting actuaries with Willis Towers Watson based in Detroit.

Several applications of the claims cost indexes are described in the discussions in the Risk Financing section on "Risk Quantification." These have also been updated. The discussion on "Data Requirements" provides examples of how the indexes are utilized with other trend factors, such as those for loss development. It explains the use of payout profiles and present value analysis for different risks. The discussion on "Basic Loss Forecasting Methods" offers additional examples using the U.S. claims cost indexes for forecasting losses.

Also in this month's Perspectives is our regular "Market Corner" discussion. "Market Corner" provides quarterly updates on current property and casualty insurance market conditions. Ample capacity in the market continues to drive overall conditions favorable to insureds, but underwriters continue to follow more stringent practices. Pricing changes are very loss sensitive and industry-specific, especially in primary coverage layers.

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