Claim closure rate

James Berquist and Richard Sherman started in 1977, in the Proceedings of the Casualty Actuarial Society, from what any claims manager knows. A claims department that hires, changes systems or is told to clear the small files before year-end pays faster, and the paid triangle reads that change in speed as a change in cost. Their adjustment rests on the closure rate, or disposal rate: the number of claims closed at a given age, divided by the expected ultimate claim count for the accident year. Some practitioners divide by claims reported to date, which changes the reading on young years, and the file should say which. As long as that rate is stable from one accident year to the next at the same age, paid development factors stay comparable. Let it jump fifteen points on the last two years, and paid chain ladder multiplies an inflated cumulative by a factor calibrated on slower years. The ultimate rises with no change in the risk. The reverse happens when an overloaded department lets files drag. The closure rate is therefore tracked next to the triangle, in a table of the same layout. There, a move along a diagonal signals a handling effect, while a move along a row points rather to the accident year. It has biases of its own: a campaign to close files without payment pushes it up without a single extra euro paid, and reopenings pull it back down after the fact. Not to be confused with the payment pattern, which follows amounts and not counts, or with the paid-to-incurred ratio, which mixes payments and case reserves.