An outlier claim (or more simply, outlier) is one which for any reason fails to act randomly. Outliers are the primary reason why actual-to-expected claims run-out experience is not closer to 100%.
Examples of outliers are (a) lawsuits, (b) claims processing adjustments (COB, Medicare Secondary, managed care, subrogation) or (c) stop-loss specific adjustment delays.
A claim may be an outlier for purposes of claims processing and not for purposes of claim reserving and vice versa.
The preferred protocol is this: (a) Once the claim is identified by the claims administrator that it is an outlier, it should be treated as a settled claim and removed from the lag report, (b) such outlier should be identified as such and afforded an individual valuation (estimate of amounts to be ultimately paid) by a qualified examiner on a facts-and-circumstances basis, (c) a folio of such outliers should be maintained, (d) the total evaluation of all such outlers should be shown as Adjustment Three (Outlier Claims Adjustment on the Reserve Amendment Work-Product).
Casualty Insurer Practices
Since the casualty insurers deal with so many outlier claim issues, their practices should be noted. For such insurers their practices has a significant impact on their earnings. Their approach is both (a) a science and (b) an art.
This approach would be where there is available some meaningful claims experience by which an actuarial appraisal is possible – however tenuous it may be.
This approach would be where no such experience is available and only a thoughtful and prudent judgement is available. This judgement usually is an estimate of a jury award. Guidelines which can cited are (a) past experience with similar claims, (b) consensus of the claims managers and (c) opinion of the defense attorneys. Any hoped-for relief with this challenge in the future is doubtful.
Lessons to Be Learned from the Casualty Insurers
There are four in number: (a) train claims on the intricacies of outliers, (b) do run-out or experience studies of outliers, (c) maintain claims-approval levels for outliers and (d) do internal audits.