Predictive Modeling Applications in Actuarial Science

Chapter 10 - A Framework for Managing Claim Escalation Using Predictive Modeling


Mohamad A. Hindawi | Allstate Insurance Company

Claudine H. Modlin | Willis Towers Watson

Chapter Preview

This chapter discusses a type of predictive modeling application commonly referred to as claims triage. The broad objective of claims triage is to use the characteristics of each individual claim at a specific point in time to predict some future outcome, which then dictates how the claim will be handled. In practice, claims triage might identify simpler claims for fast-track processing or alternatively identify complex claims that require expert handling or intervention. Claims triage models can help assign claims to the right adjuster or inform the adjuster of what actions to take (e.g., when to dispatch an engineer to a claim site or when to assign a nurse case manager to a workers’ compensation claim).

In this chapter, we discuss a specific application that seeks to identify those claims that have a higher likelihood to settle far in excess of early reported loss estimates. This early identification of likely claim escalation should enable the claims department to better manage and potentially mitigate the escalation. Much of our discussion is based on application to workers’ compensation claims, but the methods and issues discussed can be relevant to other long-tailed lines with sufficient claims volume such as general liability.