There are three reasons why the paid method could calculate a result much higher than the incurred method:
- The claims are closing out fast, which makes the paid amount a high percentage of the incurred amount. Once development factors are applied, the paid method is skewed on the high side.
- There is under-reserving. Once development factors are applied, the incurred method is skewed on the low side.
- One or two claims have large payments relative to the rest of the claims for a period. Once development factors are applied, the paid method is skewed on the high side.
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