Double Chain Ladder, Claims Development Inflation and Zero Claims
The authors' previous academic research into Double Chain Ladder demonstrated how the classical chain ladder technique can be broken down into separate components. This paper continues an investigation of the double chain ladder, and illustrates a simple way to include prior knowledge of severity inflation and future zero claims into the framework of the model.
This added knowledge does not affect the predicted mean reserve. It does however add to the understanding of the underlying distributional properties of our reserve. In our data study the two effects have similar implications. Our prior knowledge of zero claims make our final distribution more long tailed. Prior knowledge of severity claims does the same but it also demonstrates a remarkable change in the split between RBNS and IBNR claims. Adding the two types of prior knowledge at the same time does not provide further effects to this long tailness or separation between RBNS and IBNR claims. The research concludes that it is surprisingly easy to add complicated model structures of zero claims and severity inflation to double chain ladder.
The full draft research paper can be downloaded at the link "Double Chain Ladder, Claims Development Inflation and Zero Claims" below. This research is part of a series of studies into the chain ladder method.