Catastrophes and Workers Compensation Ratemaking

NCCI changed its workers compensation ratemaking methodology to improve the treatment of large individual claims and catastrophic multiclaim events related to the perils of industrial accidents, earthquake, and terrorism. NCCI worked with a well-known modeling firm to determine provisions for catastrophic events on a state basis. This paper describes the new methodology that NCCI has filed in many states. We discuss how certain traditional areas of aggregate ratemaking were modified: loss development including the tail factor, trend, capping losses, and application of excess provisions. The paper also documents for the first time in CAS literature how computer modeling was applied in workers compensation to determine loss costs by state.