Part III Appendices - Methodology

This section includes our commentary on PwC's adopted valuation methodologies.

A1 Payments Per Active Claim Method

Quarterly Payments per Active Claim models are adopted for valuing the following payment types:

• Non fatal weekly benefits
• Fatal weekly benefits - dependants and spouses are modelled together. Adjustments are made to allow for spouse capitalisations
• Medicals - split into short term (consisting of GPs, physiotherapists and radiologists) and other
• Social rehabilitation non serious injury - excluding capital
• Vocational rehabilitation
• Elective surgery
• Independence allowance (modified - see Section A.3 below).

Active claims are defined as claims that received at least one payment of the type being valued in the quarter. There is a separate model for each account, although the assumptions adopted for each of the work accounts are the same, as are the assumptions for each of the earners accounts.

The expected number of active claims in the first 30 development years (i.e. duration post injury) were projected based on valuation assumptions derived from historic trends in the number of active claims. The number of active claims beyond development year 30 were set after considering the age profile of currently active claims, and future discontinuance assumptions allow for retirement and death only.

Past payments are inflated as described in Section 3.2. Payments per active claim (PPAC) in current values are calculated and valuation assumptions selected.

Seasonality is allowed for in the active claims and payments.

Allowance is made for future inflation and discounting (see section 3). Allowance for superimposed inflation for each payment type is discussed Appendices B to O.

A 2 Payment Decay Method

The payment decay method is adopted for the following payment types:

• Social rehabilitation non serious injury - capital
• Other rehabilitation - separately for backdated attendant care and non backdated attendant care.

This method involves analysis of the decay in total payments by duration from accident.

A.3 Individual Claim Projection

Individual claim projection is used to produce estimates for Social Rehabilitation (Serious Injury) and Independence Allowance payment types.

Social Rehabilitation for Seriously Injured Claimants

An individual claim model is adopted for valuing social rehabilitation for seriously injured claimants. Serious injury is defined by injury type (see Appendix B).

Splitting out serious injuries in the valuation is a sensible approach given the differences in the shape and duration of the payments in question and the improvements in projections potentially generated by obtaining detail on individuals' age, attendant care requirements and other personal details.

For "established" accident periods, PwC project future attendant care costs for each currently active individual claim allowing for:

• Age
• Injury
• Current payments.

Discontinuance is incorporated for higher than population mortality. This loading differs by injury with more severe injuries receiving a heavier loading.

For less mature accident years, payments are projected based on the mix of injuries and reflecting historical averages for each injury. We understand that other claimant characteristics such as age are also taken into account.

Allowance is made for yet to be reported claims (IBNR) for which historical average assumptions are adopted.

Independence Allowance

PwC used a variant of the PPAC method, with payments per claim determined on an individual claims basis to take account of their injury severity. This is a refinement to PwC's methodology for this payment type compared to the previous review. The standard PPAC methodology is not thought to be appropriate because of changes in legislation over time, claimants' option to capitalise, and change in the injury mix profile over time. It is reasonable to adapt the methodology to reflect these features of the experience.

A.4 Payments per Claim Settled

PwC used a payment per claim settled approach for lump sums separately for asbestos related and non asbestos related claims. The method involves first estimating the number of future claims for each accident period. The estimated future liability is obtained by multiplying this by an assumed average claim cost. This amount is then inflated and discounted to the valuation date.

A.5 Ambulance and Bulk Billing

PwC's estimated provision is 2% of the total paid for this payment type in the year prior to the review. We note that this payment type only covers the cost of emergency transport within the first 48 hours of an accident occurring. We understand that these claims are paid shortly after the ambulance transport is provided, which results in a low level of outstanding claims. The costs of ambulance treatment more than 48 hours after an accident are generally paid indirectly by ACC through partial funding of Public Health Acute Services (PHAS).

A.6 Claims Handling Expenses

PwC estimate claim handling expenses as a proportion of future claim payments. Separate assumptions are made by category of expense, account and duration since injury.

A.7 Changes since December 2008 Valuation

There have been no changes in methodology since the December 2008 valuation. PwC is now allowing for future Cabinet-approved and regulated rate increases. Further details are given in Section 4.

A.8 Conclusion

The methods adopted for each payment type are appropriate. However, specific adjustments should be considered for Non-Fatal Weeklies and Elective Surgery.

• For Non-Fatal Weeklies, we suggest PwC investigate and document claimant dynamics in an attempt to better understand changes in continuance rates. Refer to Appendix D for further details.
• For Elective Surgery, we recommend PwC explicitly include waiting lists within its estimation methodology. Refer to Appendix J for further details.

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