Using Survival Analysis to Predict Workers’ Compensation Termination

By Ian Duncan, Nhan T Huynh, Janet E. Duncan, Roberto Molinari

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The standard method for calculating reserves for permanently injured worker benefits (indemnity and medical) is a combination of adjuster-estimated case reserves and reserves for incurred but not reported claims (IBNR) using a triangle method. There has been some interest in other reserving methodologies based on a calculation of future payments for the expected lifetime of the injured worker using a table of mortality rates. This method (State of California 2011) is required by the State of California for estimating future medical reserves on permanently disabled workers under self-insured plans, using the most recent U.S. Life Tables as the basis. We examined the experience of an excess insurance pool using different methods to determine the appropriateness of the standard table as an estimator of claim termination. The estimated pool termination rates were significantly higher than the standard table for most ages. We also calculated termination hazard rates using both Kaplan-Meier and Cox proportional hazards models and found that the modeled termination hazard was significantly higher than the standard table mortality rates. Finally, because life expectancy is only one com-ponent of the State of California reserve formula we cannot conclude that the formula results in over-reserving for future medical claims. If this approach is to continue to be used, a more appropriate method for calculating termination rates should be considered.

Keywords Workers compensation, reserving, permanently disabled, Kaplan-Meier, Cox proportional hazards


Duncan, Ian, Nhan T Huynh, Janet E. Duncan, and Roberto Molinari, "Using Survival Analysis to Predict Workers’ Compensation Termination," Variance 13:1, 2020, pp. 31-53.

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Variance (ISSN 1940-6452) is a peer-reviewed journal published by the Casualty Actuarial Society to disseminate work of interest to casualty actuaries worldwide. The focus of Variance is original practical and theoretical research in casualty actuarial science. Significant survey or similar articles are also considered for publication. Membership in the Casualty Actuarial Society is not a prerequisite for submitting papers to the journal and submissions by non-CAS members is encouraged.