NCCI Publishes Report On Relationship Between Medical Utilization And Indemnity Claim Severity

                               Boca Raton, FL (CompNewsNetwork) - NCCI has published a new research report comparing the factors driving medical and indemnity severity.

An NCCI study published in July 2010 examined the factors driving medical severity over two time periods. A simple “model” of claim costs was used to identify and quantify the factors that explained that overall increase. This is an extension of that study. This study examines the factors driving the increases in indemnity severity and compares them to the factors driving medical severity.

Key Findings

One of the key challenges in ratemaking is understanding the changes that underlie lost cost trends. In particular, analysts have observed marked differences in the very high rates of increase in medical and indemnity severity in the last half of the 1990s and the more gradual increases in the first half of the current decade. The analysis reported in this study provides the following insights:
  • As expected, price for both medical and indemnity moved consistently with their respective leading indicators (medical inflation and average weekly wages)
  • Utilization (measured as duration and treatments per claim) went from being a major driver of severity increases in the first period (1996/97 to 2000/01) to actually decreasing in absolute terms in the second period (2001/02 to 2005/06)
  • The impact of changes in diagnosis mix was significant in the first period and eased off in the second period
  • When comparing the number of medical treatments per claim and duration, they move fairly closely together over time for both claims with and without surgery. Correlations over time vary at the diagnosis level, but are generally strongly positive
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