d-insurance feasibility study

3109CorneliusDrive

Bloomington,IL61704309.807.2300

pinnacleactuaries.com

CommitmentBeyondNumbers

RooseveltC.Mosley,FCAS,MAAAPrincipal&ConsultingActuary

rmosley@pinnacleactuaries.comJune8,2015Mr.CharlesRaimiDeputyCorporationCounselCityofDetroitLawDepartment2WoodwardAvenue,Suite500Detroit,Michigan48226[deliveredviaemailtoraimic@detrotitmi.gov]DearChuck:AttachedisthereportdetailingtheestimatedsavingsbasedontheproposedPIPreforms.Ithasbeenapleasureworkingwithyouinthedevelopmentofthisreport.Pinnacleremainsavailabletoansweranyquestionsorprovideanyclarificationsasneeded.ThankYou,Roosevelt

RooseveltC.Mosley,FCAS,MAAAPrincipalandConsultingActuary

3109CorneliusDriveBloomington,IL61704

309.807.2300pinnacleactuaries.com


June8,2015

RooseveltC.Mosley,Jr,FCAS,MAAArmosley@pinnacleactuaries.com

309.807.2330

3109CorneliusDrive

Bloomington,IL61704309.807.2300

pinnacleactuaries.com


June8,2015

TableofContents

ContentsTableofContents........................................................................................................................................1

Scope...........................................................................................................................................................2

ReliancesandLimitations...........................................................................................................................2

DistributionandUse...................................................................................................................................2

Data.............................................................................................................................................................3

ProjectBackground.....................................................................................................................................4

ReformProposal#1:PIPBenefitLimitsandPreferredProviderAgreements...........................................5

IntroducePIPBenefitLimits...................................................................................................................5

PreferredProviderAgreement...............................................................................................................5

ReformProposal#2:HighDeductibleOption............................................................................................7

TotalEstimatedSavingsReformOption#1.............................................................................................7

TotalEstimatedSavingsReformOption#2.............................................................................................8

MoreRecentData.......................................................................................................................................9

Conclusion.................................................................................................................................................10

IndexofAttachments................................................................................................................................12

2|P a g e PinnacleActuarialResources,Inc.

ScopeTheCityofDetroit(TheCity)engagedPinnacleActuarialResources,Inc.(Pinnacle)toperformafeasibilitystudyforaproposedCitysponsoredinsurancecompany(DInsurance)thatwillsellnofaultinsurancetovehicleownersinDetroit.TheinitialphaseoftheprojectwasforPinnacletoreviewavailableinsurancedataandproposedlegislativechangestotheMichigannofaultlawthatwouldapplytotheproposednewinsurer,andtoestimatethepremiumsavingsthatcouldbeachievedbasedonthelawchanges.

Basedonthefindingsintheinitialphaseandtheoutcomeoftheproposedlegislativechanges,PinnaclewouldthenassistTheCitywithdevelopmentoftheratingandunderwritingplanforDInsuranceaswellasprojectedfinancialresultsandcapitalrequirements.

Thisreportoutlinesthecalculationoftheestimatedsavings.

ReliancesandLimitationsIndevelopingthisreport,PinnaclehasreliedprimarilyupondataandinformationsuppliedbyTheCityandtheInsuranceResearchCouncil(IRC).Werelieduponthegeneralaccuracyofthisdataandinformationwithoutindependentverification.However,wedidreviewcertainelementsofthisdataandinformationforreasonablenessandconsistencywithourknowledgeoftheinsuranceindustryandtheclaimsprocess.Wealsovalidatedthatthedataprovidedwasconsistentwithothersourcesofpubliclyavailableinformation.Anyerrorsoromissionsinthedataprovidedcouldhaveamaterialeffectonouranalysisoftheprojectedsavings.

TheanalysisoftheIRCclaimexperiencewasforclaimsthatoccurredin2012.Assuch,anyprojectionoftheresultsofthisdataintothecurrentclaimsenvironmentinvolvesestimatesoftheimpactofdifferencesinthelegalandmedicalenvironmentnowasopposedto2012.Therefore,anysuchprojectionsaresubjecttoeconomicandstatisticalvariation.Noassurancescanbeofferedthattheresultsofthisclaimstudywillberepresentativeoftodaysconditions.

Otherreliancesandlimitationsandspecificassumptionsanddataadjustmentsarecitedinthisreportandintheattachedexhibitsthatareanintegralpartofthisreport.

DistributionandUseThisreportandtheopinionsexpressedhereinhavebeenpreparedforTheCitysinternaluseandforthesupportoftheCityslegislativeeffortstoauthorizeinsurerstosellaDInsuranceproductonly.FurtherdistributionofthisreportisnotallowedwithouttheexpresswrittenconsentofPinnacle.Upongrantingofsuchrequest,thereportmustbereleasedinitsentirety,andallrecipientsmustbemadeawarethatPinnacleistheauthorofthisreportandisavailabletoansweranyquestions.


Pinnacledoesnotassumeanyliabilityforthereliancesofthirdpartiesontheconclusionsofthisreport.

AnythirdpartiesreceivingthereportshouldrecognizethatthefurnishingofthisreportisnotasubstitutefortheirownduediligenceandshouldplacenorelianceonthisreportorthedatacontainedhereinthatwouldresultinthecreationofanydutyorliabilitybyPinnacletothethirdparty.

AnyreferencetoPinnacleinrelationtothisreportinanyaccountsorotherpublicdocumentsoranyverbalreferenceissuedbyTheCityisnotauthorizedwithoutourpriorconsent.

DataDuringthecourseofthisreview,PinnaclehasreliedonthefollowingdataandinformationreceivedfromTheCityandtheIRC:

1. DraftDInsurancelegislationdatedMay20,20152. AutoInjuryInsuranceClaims:CountrywidePatternsinTreatment,CostandCompensation,

2014EditionPersonalInjuryProtection(PIP)andBodilyInjury(BI)InformationforMichigan,NewYork,Florida,NewJerseyandMassachusettsforclaimsthatwereclosedin2012

3. CitizensResearchCouncilofMichigan,October2013reportMedicalCostsofNoFaultInsurance.

4. MichiganChamberofCommerce,April2011studytitled"TheHighCostsofMichigan'sNoFaultAutoInsuranceCausesandImplicationsforReform."

5. MichiganAutomobileInsurancePlacementFacilityBaseRateseffectiveJanuary1,20156. IndependentStatisticalServicesAutomobileExperiencePremiumData,calendaryear2013

TheIRCdataincluded5,095claims.Theclaimsbreakdownbystateisshownbelow.

FromthisIRCdatabase36BIclaimsand55PIPclaimsoccurredinDetroit.DuetothelimitednumberofPIPclaimsintheIRCdatabase,reformsavingsestimateswerecalculatedforallIRCPIPclaimsinMichiganaswellasseparatelyforclaimsthatoccurredintheCityofDetroitonlyasareasonabilitycheckforsavingsestimates.

NumberofClaimsState BI PIP GrandTotalFlorida 1,025 780 1,805Massachusetts 421 159 580Michigan 139 557 696NewJersey 310 632 942NewYork 317 755 1,072GrandTotal 2,212 2,883 5,095


ProjectBackgroundBylaw,Michigandriversmustbuyfirstpartymedicalinsurance(alsoreferredtoasPersonalInjuryProtectionorPIP)andresidualliabilitycoverage(BodilyInjuryandPropertyDamage,BIPD).Driversarenotlegallyrequiredtobuycollisionandcomprehensivecoverage,butthesecoveragesarerequiredbylienholdersifadriverhasacarloan.

StatisticaldatafiledwiththeMichiganDepartmentofInsuranceandFinancialServices(DIFS)throughtheIndependentStatisticalService(ISS)bysomeofthelargestcarinsurancewritersinMichigan,includingAllstate,AutoClub,andStateFarm,showsthatin2013,theaverageannualpolicypremiumforPIP,BIPD,andcollisionandcomprehensivecoverageindowntownDetroitwas$2,249.70.ThiswasdoubletheaverageannualpremiuminwesternOaklandCounty.Itshouldbenotedthatthisaggregatedataisnotadjustedtoreflectthedifferenceinthespecificcoveragespurchasedbetweenthetwoareas.ISSdataalsoshowsthatabout2/3ofpolicyholdersinDetroitpurchasefullcoverage,whilealmost100%ofpolicyholdersintheDetroitsuburbspurchasefullcoverage.

TosupportinitiativesoftheMayorsoffice,TheCitywouldliketoenactlegislationauthorizingTheCitytocontractwithinsurancecarrierstoofferDInsurancecoverage.Thiscoveragewouldbeofferedatalowerratethancurrentlyavailableinthemarketplace.ThiswouldbeaccomplishedbyintroducingreformstotheMichiganinsurancelawsthatwouldbeapplicableonlytoTheCityownedinsurancecompany.TheproposedreformshavebeendevelopedbytheMayorsofficeandareasfollows:

1. ReformProposal#1:Thefirstreformproposalconsistsoftwoelements.a. Introducea$25,000/$250,000limit:Currently,PIPbenefitsareunlimited.Thischange

tothelawwouldallowinsuredstopurchasePIPbenefitswithaspecifiedlimitof$25,000,exceptincasesofnecessarycriticalcare,whichwouldbeadditionalcoveragewithalimitof$250,000peroccurrence.

b. Allowinsurerstonegotiatepreferredproviderarrangementsandpreauthorization:ThiswouldallowDInsurancetocreatealimitedprovidernetwork.Exceptforemergencyservices,theinsurermayrequireaclaimanttoobtainproducts,treatment,services,accommodations,orrehabilitativeoroccupationaltherapyortrainingprovidedforunderthisactfromaproviderorsupplierthatispartofthelimitedprovidernetwork.Theclaimantmayalsoneedtoobtainpreauthorization.

2. ReformProposal#2HighDeductibleOption:ThisoptionwouldincorporateahighdeductibleoptionintothecurrentunlimitedPIPbenefitprogram.

Theattachedexhibitsanddiscussionbelowshowtheexpectedimpactoninsurancelossesifthesereformsareimplemented.


ReformProposal#1:PIPBenefitLimitsandPreferredProviderAgreements

IntroducePIPBenefitLimitsCurrently,PIPbenefitsinMichiganareunlimited.OneofthereformsbeingproposedistheintroductionofPIPbenefitlimits.Specifically,thelegislativechangesbeingproposedare:

1. $25,000limitperpersonforbenefitspayableformedicalexpenses,worklossandreplacementservices.

2. Anadditionalamountnottoexceed$250,000intheaggregate,onlyforcriticalcareforthepersonnamedintheQualifyingNoFaultPolicy,theperson'sspouse,andarelativeofeitherdomiciledinthesamehousehold,whoareinjuredinasinglemotorvehicleaccidentduringthepolicyterm.Criticalcaremeanstreatmentrenderedatanacutecarehospitalortraumacenterimmediatelyfollowingthemotorvehicleaccident,necessarytosavethepatientslifeortreatlifethreateningorpermanentlydisablinginjuries,untilthepatientisstabilized.Apatientisstabilizedwhenthepatientcansafelybedischargedortransferredtoanotheracutecarehospitalortraumacenter,rehabilitationorotherfacility,regardlessofwhetherthepatientis,infact,dischargedortransferredatthattime.AQualifyingInsurershallhavetherighttocontestthechargesofanacutecarefacilityunderthissectiontotheextenttheInsurercanpresentcompetentevidenceshowingthatthefacilityschargesrelatetopoststabilizationservices.

Toestimatethesavingsforthisreform,Pinnacleappliedthe$25,000benefitlimittotheindividualPIPclaimsprovidedintheIRCdatabase.Priortotheapplicationofthelimit,themedicalnoncriticalcarepaidclaimamountsweredecreasedbytheestimatedsavingsfromthePreferredProviderAgreementreform(discussedbelow).Aftertheapplicationofthe$25,000limit,iftherewerepaidlossespresentontheclaimforEmergencyRoomDoctorsorAmbulanceCare,theseamountswereaddedtothelossesthatwouldbepaidunderthereformsubjecttothe$250,000limit.

TheestimatedsavingstotheoverallPIPcostssolelyfromtheapplicationofthebenefitlimitsis62.1%forDetroit.

PreferredProviderAgreementThisproposedchangewouldallowaninsurertocreatealimitedprovidernetwork.Exceptforemergencyservices,theinsurermayrequireaclaimanttoobtainproducts,treatment,services,accommodations,orrehabilitativeoroccupationaltherapyortrainingprovidedforunderthisactfromaproviderorsupplierthatispartofthelimitedprovidernetwork.Theclaimantmayalsoneedtoobtainpreauthorizationfornonemergencyservices.


ThelimitedprovidernetworkandpreauthorizationwouldaddresstwosignificantissuesrelatedtoPIPcoverageinDetroit.ThefirstisthatthechargeformedicalprocedurespaidunderPIPissignificantlyhigherthanthechargeformedicalprocedurespaidunderWorkersCompensationorMedicare.ThesecondrelatestooveruseandpotentialabuseofPIPcoverage.

Formanycommonmedicalprocedures,MichiganmedicalproviderschargenofaultinsurerstwotofivetimesmorethanrateschargedforthesameprocedurebyMedicare.1AtableofmedicalproceduresandassociatedreimbursementsunderNoFault,MedicareandWorkersCompensationisshowninAttachment1.

Inaddition,nofaultpremiumsinMichiganmayalsobeinflatedbyoveruseofbenefits,thefilingoffraudulentorexcessiveclaims,andlegalfeesgeneratedbyexcessivelitigation.Typicalpatternsoffraudoroveruseinvolvehardtoverifyinjuriesandlargenumbersofvisitstoprovidersofalternativemedicaltherapies.2

TheproblemofoveruseisparticularlyacuteinDetroit,where

1. theaveragefrequencyofPIPclaimsinDetroitistwicethefrequencyinthesuburbs(12per1,000exposuresvs.6per1,000exposures),

2. averageseverityofPIPclaimsinDetroitisroughlytwicetheaverageseverityinthesuburbs($59,000vs$30,000),and

ThecreationofaclosednetworkwithpreauthorizationwillprovidetheDInsurancecarrierwiththeabilitytonegotiaterateswithmedicalproviders,tolimitexcessiveorunnecessarytreatmentandavoidlitigation.Therefore,webelievethattheultimateratesnegotiatedwouldmoveinthedirectionoftheWorkersCompensationschedule.AscanbeseeninAttachment1,Workerscompensationmedicalproviderreimbursementsare11%77%lowerthanreimbursementsunderPIPbasedonthetypeofmedicalprocedure.

PinnaclealsoperformedasearchforstudiesthatestimatedthecostsavingsassociatedwithPreferredProvidersystems.ThoughmanyofthestudiesaresomewhatdatedbecausePreferredProvideroptionswereintroducedroughly1520yearsago,PinnacledidfindastudybyTheRobertWoodJohnsonFoundation3thatprovidedsavingsestimatesfromintroducingaPPO.Theestimatedsavingsfromthisstudywere1214%.

1CitizensResearchCouncilofMichigan,October2013report"MedicalCostsofNoFaultAutomobileInsurance,"p.7.2MichiganChamberofCommerce,April2011studytitled"TheHighCostsofMichigan'sNoFaultAutoInsuranceCausesandImplicationsforReform,"p.17.3RobertWoodJohnsonFoundation.PreferredProviderOrganizationsAreTheyBetteratKeepingHealthCostsDown?January1,2001.


Tounderstandthepotentialsavingsbasedonimplementationofpreauthorization,thusdecreasingfraudandoverutilization,PinnaclereviewedthestatisticsrelatedtoPIPfraudinotherstates.IntheIRCdata,therearedatafieldsthatindicatewhetheraclaimwasreferredtoanotheragencyforfurtherinvestigation.Foraspecificclaim,thisfieldindicateswhetherornotaclaimwasreferredtotheinsurancecompanysSpecialInvestigativeUnit(SIU),lawenforcement,prosecutorsortheNationalInsuranceCrimeBureau(NICB).Inaddition,Pinnaclereviewedtheseverityofclaimsthatwerereferredforfurtherinvestigationversusthosethatwerenotreferred.

Attachment2showstheclaimreferralratesbyNoFaultstateandtheseverityofnonreferredvs.referredclaims.ForPIP,thereferralratesforMichiganwere5.4%andforDetroitwere20%.Theotherstatesrangedinreferralrateswere1.9%10.6%.TheseverityfornonreferredclaimsforMichiganwasabout62%lowerthantheseverityforreferredclaims.ForDetroit,thenonreferredseveritywas71%lowerthantheseverityforreferredclaims.Fortheotherstates,thedifferenceinseveritiesrangedfrom8.4%35%lowerfornonreferredclaims.Asaresult,forPIPwecanseethatthereispotentialforsavingsbasedontheseveritydifferencesofreferredvs.nonreferredclaims.Assuminganestimated25%decreaseinseverity,forexample,translatesintoestimatedsavingsforPIPof10.5%,asshowninAttachment3.

Basedonthiscombinationofpotentialsavings,weareestimatinga20%losscostsavingsfromimplementingalimitedprovidernetworkandpreauthorization.Thisestimatedsavingsappliedonlytothemedicalportionofthelossespaidandassumingnootherchangeswouldresultina13.9%estimateddecreaseinoverallPIPlosscosts.SeeAttachment4formoredetails.

ReformProposal#2:HighDeductibleOptionThisoptionwouldallowinsuredstopurchasePIPbenefitssubjecttoadeductible.Pinnacleestimatedthesavingsfromseveraldeductibleoptions$1,000,$2,500and$5,000.Forthisoption,theinsuredwouldberesponsibleformedicalcostsuptheamountofthedeductible.

Toestimatethesavingsfromtheseoptions,PinnacleappliedthedeductibletoeachoftheindividualclaimsintheIRCdata.AscanbeseeninAttachment5,savingsfortheCityofDetroitrangedfrom3%to13%baseduponthedeductibleselected.

TotalEstimatedSavingsReformOption#1AscanbeseeninAttachment6,thecombinedestimatedlosssavingsforthelimitedprovidernetworkandthePIPbenefitlimitfortheCityofDetroitisestimatedtobe64.5%ofPIPclaimcosts.Thereasonthetotalsavingsdoesnotequaltheproductoftheindividualsavingsestimatesisduetotheoverlappingimpact.Becauseofthe$25,000PIPbenefitlimit,theimpactofthelimitedprovidernetworkisdampenedsignificantly.


ThetotalestimatedpremiumsavingsforthePIPreformsisshowninAttachment7A.

Toestimatethesavings,Pinnaclebeganwiththe2013averagepremiumbycoverageinDetroitMetropolitanInner(Territory36)ascalculatedfromtheAutomobileExperienceDatafromISS.Wethenappliedtheestimatedlosssavingspercentages(adjustedasdescribedbelow)basedonthereformsdiscussed.Theoverallestimatedpremiumsavingsforafullcoveragepolicywouldbe25.8%,whiletheestimatedsavingsforaliabilityonlypolicywouldbeabout45.9%.

Thecostestimatesinthisreportaregenerallystatedintermsoftheimpactonclaimlosses.Theimpactonclaimlossescannotbeusedinterchangeablywithpremiumsavings.Thisisbecauseaportionoftheinsurancecompaniesexpensesisforgeneraloverhead(rent,utilities,etc.)andwouldnotdecreaseproportionatelytothelosscosts.Basedonthe2013BestsAggregatesandAveragespublication,PrivatePassengerAutomobileLiabilitygeneralandotheracquisitionexpensesrepresent14.2%oftheindustrywidewrittenpremium(this14.2%doesnotincludeagentscommissions,premiumtaxesandotherpremiumrelatedexpenses).Toestimatethepremiumsavingscorrespondingtothecostsavingsshowninthisreport,itisnecessarytoreducethelosssavingsbyafactorof.858.Thusa64.5%costsavingsequatestoanapproximate55.3%premiumsavings.

Thesavingscalculatedassumethatcurrentratesareadequate.TotheextentthatcurrentPIPratesareinadequate,itislikelythatthepremiumsavingscouldbelower.WewouldalsoemphasizethattheabovepercentagesavingsareaveragesforPIPcoverageonly.ItispossiblethatactualsavingscouldvarybyareaofDetroit,andalsobytheageandotherratingcharacteristicsofthecovereddrivers(s),drivingrecords,typeandageofcar,levelandtypeofcoverageandotherfactors.

Inaddition,thesesavingsestimatesassumenochangetothetortthresholdinMichiganandthusnoassociatedincreaseinliabilitycosts.TotheextentthattheliabilitythresholdchangesasaresultofthePIPbenefitlimitsandmoreliabilityclaimsarefiled,thiswouldleadtoanincreaseinliabilityclaimcosts.

TotalEstimatedSavingsReformOption#2AscanbeseeninAttachment5,theestimatedlosssavingsforthehighdeductibleoptionfortheCityofDetroitisestimatedtobe313%ofPIPclaimcostsdependingonthelimitchosen.TheestimatedsavingsgeneratedbyapplyingthebenefitlimitstoallclaimsinMichiganare518%ofPIPclaimcosts.

ThetotalestimatedpremiumsavingsforthePIPreformsisshowninAttachment8Aand8C.Theoverallestimatedpremiumsavingsforafullcoveragepolicyfora$1,000deductiblewouldbe1.2%,whiletheestimatedsavingsforaliabilityonlypolicywouldbeabout2.2%.Forthe$5,000deductible,theestimatedfullcoveragesavingsare5.1%,andtheliabilityonlyestimatedsavingsare9.1%.


MoreRecentDataAsdiscussedabove,Pinnaclesanalysisfocuseson2013ISSpremiumdatathatsuggestsanaverageDetroitautoinsurancevehiclepremiumin2013was$2,250.ThatinformationexcludestheeffectsofcitizensofDetroitwhodrivewithoutinsurance.TheCityhasprovidedanecdotalevidencethatin2015,manycitizensofDetroit,includingthosewithgooddrivingrecords,paypremiumsmuchhigherthan$2,250.PinnaclehasobtainedrecentinformationfromtheMichiganAutomobileInsurancePlacementFacility(Facility).TheFacilityactsasaninsureroflastresortforindividualswhocannotsecurenofaultcoverageintheopenmarket.TheFacilitysetsitsbaseratepremiumsastheaverageofthetopfiveinsurancecarriersinthestate.Baseratesrepresentthepremiumschargedpriortotheapplicationofanydiscountsorsurcharges.MostdriversseekingcoveragefromtheFacilitywillpaypremiumshigherthanthebaseratesasaresultofunderwritingfactorssuchasage,drivingrecord,mileage,etc.TheFacilitysmostrecentannualbaserateaveragepremiumdataforDetroitisasfollows:Coverage PremiumsPerYearBodilyInjuryLiability $468PropertyDamageLiability 48PropertyProtection 142PersonalInjuryProtection 4,134Collision($100Deductible) 1,126Comprehensive($100Deductible) 310Total $6,228

Usingthisdata,andassuminga55.3%savingsonthePIPpremium(basedonReformOption1PIPlimitoption),theownerwouldsaveapproximately$2,286bringingthepremiumdownfrom$6,228to$3,940anallcoveragesavingsonthepolicyof37%.Dependingontheageandvalueofthevehicle,itmightbeeconomicallywiseforanownertoselectalargerdeductibleforcollisionandcomprehensivecoverageorelectnottoobtaincollisionandcomprehensivecoverage.Ifcollisionandcomprehensivecoverageiseliminated,theannualpremiumunderthecurrentnofaultlawwouldbe$4,792.A55.3%savingsonPIPwoulddecreasethepriceofthepolicydownto$2,504,oradecreaseof48%.ThedetailsareshowninAttachment7B.TheestimatedsavingsforReformOption2basedontheMAIPFbaseratesareshownin8Band8D.Forthe$1,000deductibleoption,thefullcoveragesavingsare1.8%andtheliabilityonlysavingsare2.3%.


Usingthe$5,000deductibleoption,thefullcoveragesavingsare7.3%andtheliabilityonlysavingsare9.5%.TheCityhasalsoprovidedtoPinnaclethefollowing2015hypotheticalrateexampleasanexampleofthetypesofsavingsthatcanbeachieved.Thehypotheticalcasestudycomesfromamajorautoinsurerthatoffersinsurancepremiumquotationsonline.ArepresentativeofTheCityenteredthefollowingdetails:

x AnaddressinnortheastDetroitinthe48225zipcodex 2005ChevyMalibux 10,000milesdriverperyearx Vehicleusedtocommutetoworkandforpleasurex Basiccoverageincludingthemandatorynofaultinsurancecoveragestogetherwith

comprehensive(theft)andcollisioncoveragewith$1,000deductibles.

Thefollowingquotationwasprovidedforaoneyearpolicy:

Coverage PremiumPerYearBodilyInjuryLiability $260PropertyDamageLiability 24PropertyProtection 60PersonalInjuryProtection 3,332Collision 1,042Comprehensive 234Total $4,952

Usingthisexample,andassuminga55.3%costsavingsonthePIPpremium,theownerwouldsaveapproximately$1,844reducingthepremiumfrom$4,952to$3,108.Iftheownerinthisexampleelectednottoobtaincollisionandcomprehensivecoverage,theannualpremiumundercurrentnofaultlawwouldbe$3,676.A55.3%savingsonPIPwouldproduceasavingsof$1,844,decreasingthepriceofthepolicyto$1,832.DetailsareshowninAttachment7C.

ConclusionAsshownabove,implementingreformthatlimitsPIPbenefitswillprovidesignificantpremiumsavingstothecitizensofDetroit.Themostsignificantchangeswouldbeachievedwiththeimplementationof


ReformOption#1.Whiletheactualsavingswouldvarydependingonthespecificpolicycircumstances,theestimatedaveragesavingsfromthisoptionwouldadecreaseinpremiumsof25.8%forafullcoveragepolicy,and45.9%foraliabilityonlypolicy.


IndexofAttachments1. LimitedProviderNetworkSavingsEstimate2. PIPFraudReferralRates3. PotentialSavingsfromFraudMitigation4. PreferredProviderCostSavingsEstimate5. HighDeductibleOptionSavingsEstimate6. PIPLimitandLimitedProviderNetworkSavingsEstimate7. PremiumSavingsCalculationPIPLimitandLimitedProviderNetworkOption

a. SavingsEstimatesBasedon2013ISSAveragePremiumsb. SavingsEstimatesBasedon2015MAIPFBaseRatesc. SavingsEstimatesBasedonHypotheticalQuoteExample

8. PremiumSavingsCalculationHighDeductibleOptiona. SavingsEstimatesBasedon2013ISSAveragePremiums,$1,000DeductibleOptionb. SavingsEstimatesBasedon2015MAIPFBaseRates,$1,000DeductibleOptionc. SavingsEstimatesBasedon2013ISSAveragePremiums,$5,000DeductibleOptiond. SavingsEstimatesBasedon2015MAIPFBaseRates,$5,000DeductibleOption

Attachment1

CityofDetroitInsuranceReformPricingMedicalProcedureReimbursementAmounts

ProcedureCode Description

NoFaultReimbursement

DetroitMedicare

Reimbursement WorkCompMedicare

ReimbursementWorkComp

97110Therapeuticexercisesforstrength(each15minutes);usuallychargedby

PhysicalTherapist 79.38 30.66 41.57 61.4% 47.6%98941 Chiropracticmanipulativetreatment,spinal,34regions 72.60 36.43 48.67 49.8% 33.0%97140 Manualtherapy(each15minutes)physicaltherapy 60.80 28.91 38.03 52.5% 37.5%97014 Electricalstimulationphysicaltherapy 56.05 13.20 19.27 76.4% 65.6%97124 Massage(each15minutes)physicaltherapy 52.36 25.07 32.96 52.1% 37.1%99284 Emergencydepartmentvisit;severemedicalcomplexity 443.68 124.98 170.35 71.8% 61.6%99283 Emergencydepartmentvisit;moderatemedicalcomplexity 297.04 65.70 90.75 77.9% 69.4%98940 Chiropracticmanipulativetreatment,spinal,12regions 56.47 25.94 34.98 54.1% 38.1%99213 Officevisit,establishedpatient;typically15minutes 104.40 72.84 89.23 30.2% 14.5%97012 Mechanicaltractionphysicaltherapy 56.94 15.99 20.79 71.9% 63.5%97035 Ultrasound(each15minutes)physicaltherapy 66.26 12.50 16.73 81.1% 74.8%99214 Officevisit,establishedpatient;typically25minutes 151.30 107.90 133.85 28.7% 11.5%

97530Therapeuticactivities,improvefunctionalperformance(each15minutes);

generallychargedbyOccupationalTherapists 53.72 33.44 43.10 37.8% 19.8%97112 Neuromuscularreeducation(each15minutes)physicaltherapy 77.69 32.05 42.08 58.7% 45.8%72040 Xray,spine,cervical;2or3views 161.96 41.59 54.76 74.3% 66.2%72125 CTScanNeck 1,820.09 261.50 418.78 85.6% 77.0%72141 MRINeck 3,258.68 483.98 769.63 85.1% 76.4%72148 MRILowBack 3,278.55 484.31 765.57 85.2% 76.6%72193 CTScanPelvis 1,828.04 305.65 477.59 83.3% 73.9%72050 XRaySpine 227.55 55.89 77.06 75.4% 66.1%29826 SurgeryShoulder 2,806.13 730.70 939.98 74.0% 66.5%

Source:MitchellDecisionPoint;CRCCalculations

PotentialSavings

Attachment2

CityofDetroitInsuranceReformPricingPreferredProviderOrganization

PersonalInjuryProtection

State Total SIUOther

Company NICBStateFraud

LocalPolice Prosecutor Other

NonReferredSeverity

ReferredSeverity Difference

Florida 3.8% 3.2% 0.0% 0.4% 0.0% 0.0% 0.0% 0.3% 7,330 8,001 8.4%Massachusetts 1.9% 1.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3,608 5,547 35.0%Michigan 5.4% 4.1% 0.9% 0.0% 0.0% 0.0% 0.0% 0.4% 14,121 36,844 61.7%NewJersey 10.6% 10.4% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 16,000 20,655 22.5%NewYork 7.0% 6.1% 0.9% 0.0% 0.0% 0.0% 0.0% 0.0% 8,743 12,827 31.8%Detroit 20.0% 18.2% 1.8% 0.0% 0.0% 0.0% 0.0% 0.0% 17,880 61,477 70.9%

ClaimReferralRate

Attachment3

CityofDetroitInsuranceReformPricingFraudInvestigation

StateofMichigan

CityofDetroit

(1) EstimatedIncreaseinClaimReferralRate 0.0% 0.0%(2) EstimatedDecreaseinSeverityforReferredClaims 25.0% 25.0%(3) IRCTotalPaidLossesforReferredClaims 1,105,306 676,247(4) IRCTotalPaidLosses 7,969,097 1,613,067(5) SavingsasaPercentageofTotalLosses 3.5% 10.5%

Notes(1) EstimateBasedonIRCFraudAnalysisExhibit(2) EstimateBasedonIRCFraudAnalysisExhibit(3) IRC:AutoInjuryInsuranceClaims:CountrywidePatternsinTreatment,Costs,andCompensation,2014Edition(4) IRC:AutoInjuryInsuranceClaims:CountrywidePatternsinTreatment,Costs,andCompensation,2014Edition(5) [[(2)*(3)]/(4)]+(1)

PersonalInjuryProtection

Attachment4

CityofDetroitInsuranceReformPricingPreferredProvider

StateofMichigan

CityofDetroit

(1) PPOSavingsEstimate 20.0%(2) TotalPIPMedicalPaid 4,559,642 1,120,411(3) IRCTotalPaidLosses 7,969,097 1,613,067(4) PIPSavingsasaPercentageofTotalLosses 11.4% 13.9%

Notes(1) EstimatedImpactofPreferredProviderandPreauthorization(2) IRC:AutoInjuryInsuranceClaims:CountrywidePatternsinTreatment,Costs,andCompensation,2014Edition(3) IRC:AutoInjuryInsuranceClaims:CountrywidePatternsinTreatment,Costs,andCompensation,2014Edition(4) [(1)*(2)]/(3)

Attachment5

CityofDetroitInsuranceReformPricingHighDeductibleOption

DeductibleImpact

DeductibleStateof

MichiganCityofDetroit

1,000 5.1% 3.1%2,500 10.6% 7.1%5,000 17.5% 12.8%

Attachment6

CityofDetroitInsuranceReformPricingImpactof25,000PIPLimit/$250,000EmergencyCareLimitandLimitedProviderNetwork

StateofMichigan(1) OriginalPaidLosses 7,969,097(2) RevisedPaidLosses 3,646,820(3) SavingsEstimate 54.2%

CityofDetroit(4) OriginalPaidLosses 1,613,067(5) RevisedPaidLosses 572,548(6) SavingsEstimate 64.5%

(1) IRC:AutoInjuryInsurancePIPClaimsData(2) EstimatedRevisedLossesAssuming$25,000PIPLimit/$250,000LimitforEmergencyCareandLimitedProviderNetwork(3) (2)/(1)1(4) IRC:AutoInjuryInsurancePIPClaimsData(5) EstimatedRevisedLossesAssuming$25,000PIPLimit/$250,000LimitforEmergencyCareandLimitedProviderNetwork(6) (5)/(4)1

Attachment7A

CityofDetroitInsuranceReformPricingEstimatedSavings$25,000/$250,000LimitOptionUsing2013ISSAveragePremiums

(1) (2) (3) (4) (5)

Coverage2013ISSAverage

PremiumTotalLoss

Savings

EstimatedPremiumSavings

EstimatedNewPremium

EstimatedOverall

PercentageSavings

BI $163.08 0.0% 0.0% 163.08PD $19.24 0.0% 0.0% 19.24PIP $1,105.55 64.5% 55.3% 493.67PPI $44.20 0.0% 0.0% 44.20Collision $664.79 0.0% 0.0% 664.79Comprehensive $374.43 0.0% 0.0% 374.43

FullCoverage $2,371.28 $1,759.41 25.8%LiabilityOnly $1,332.07 $720.19 45.9%

(1) IndependentStatisticalService,Inc,AutomobileExperience,AveragePremiumsforDetroitMetropolitanInner(Territory36)(2) Attachment5(3) (3)*0.858(PortionofPremiumsthatareVariable)(4) (1)*[1+(3)](5) [(4)Total/(1)Total]1

Attachment7B

CityofDetroitInsuranceReformPricingEstimatedSavings$25,000/$250,000LimitOptionUsing2015MAIPFBaseRates

(1) (2) (3) (4) (5)

Coverage2015MAIPFBase

RatesTotalLoss

Savings


EstimatedNewPremium

EstimatedOverall

PercentageSavings

BI $468.00 0.0% 0.0% 468.00PD $48.00 0.0% 0.0% 48.00PIP $4,134.00 64.5% 55.3% 1846.00PPI $142.00 0.0% 0.0% 142.00Collision $1,126.00 0.0% 0.0% 1126.00Comprehensive $310.00 0.0% 0.0% 310.00

FullCoverage $6,228.00 $3,940.00 36.7%LiabilityOnly $4,792.00 $2,504.00 47.7%

(1) MichiganAutoInsurancePlacementFacilityBaseRates,010115,Territory3637(2) Attachment5(3) (3)*0.858(PortionofPremiumsthatareVariable)(4) (1)*[1+(3)](5) [(4)Total/(1)Total]1

Attachment7C

CityofDetroitInsuranceReformPricingEstimatedSavings$25,000/$250,000LimitOptionUsingHypotheticalRateQuote

(1) (2) (3) (4) (5)

CoverageHypotheticalQuote

AnnualPremiumTotalLoss

Savings


EstimatedNewPremium

EstimatedOverall

PercentageSavings

BI $260.00 0.0% 0.0% $260.00PD $24.00 0.0% 0.0% $24.00PIP $3,332.00 64.5% 55.3% $1,487.88PPI $60.00 0.0% 0.0% $60.00Collision $1,042.00 0.0% 0.0% $1,042.00Comprehensive $234.00 0.0% 0.0% $234.00

FullCoverage $4,952.00 $3,107.88 37.2%LiabilityOnly $3,676.00 $1,831.88 50.2% $1,844.12

(1) MichiganAutoInsurancePlacementFacilityBaseRates,010115,Territory3637(2) Attachment5(3) (3)*0.858(PortionofPremiumsthatareVariable)(4) (1)*[1+(3)](5) [(4)Total/(1)Total]1

Attachment8A

CityofDetroitInsuranceReformPricingEstimatedSavingsHighDeductibleOptionUsing2013ISSAveragePremiums$1,000DeductibleOption

(1) (2) (3) (4) (5)


PremiumTotalLoss

Savings


EstimatedNewPremium

EstimatedOverall

PercentageSavings

BI $163.08 0.0% 0.0% $163.08PD $19.24 0.0% 0.0% $19.24PIP $1,105.55 3.1% 2.7% $1,076.19PPI $44.20 0.0% 0.0% $44.20Collision $664.79 0.0% 0.0% $664.79Comprehensive $374.43 0.0% 0.0% $374.43


(1) IndependentStatisticalService,Inc,AutomobileExperience,AveragePremiumsforDetroitMetropolitanInner(Territory36)(2) Attachment4($1,000DeductibleOptionSavings)(3) (3)*0.858(PortionofPremiumsthatareVariable)(4) (1)*[1+(3)](5) [(4)Total/(1)Total]1

Attachment8B

CityofDetroitInsuranceReformPricingEstimatedSavingsHighDeductibleOptionUsing2015MAIPFBaseRates$1,000DeductibleOption

(1) (2) (3) (4) (5)


RatesTotalLoss

Savings


EstimatedNewPremium

EstimatedOverall

PercentageSavings




Attachment8C

CityofDetroitInsuranceReformPricingEstimatedSavingsHighDeductibleOptionUsing2013ISSAveragePremiums$5,000DeductibleOption

(1) (2) (3) (4) (5)


PremiumTotalLoss

Savings


EstimatedNewPremium

EstimatedOverall

PercentageSavings

BI $163.08 0.0% 0.0% $163.08PD $19.24 0.0% 0.0% $19.24PIP $1,105.55 12.8% 11.0% $983.96PPI $44.20 0.0% 0.0% $44.20Collision $664.79 0.0% 0.0% $664.79Comprehensive $374.43 0.0% 0.0% $374.43



Attachment8D

CityofDetroitInsuranceReformPricingEstimatedSavingsHighDeductibleOptionUsing2015MAIPFBaseRates$5,000DeductibleOption

(1) (2) (3) (4) (5)


RatesTotalLoss

Savings


EstimatedNewPremium

EstimatedOverall

PercentageSavings




City of Detroit Cover LetterCity of Detroit Report CoverCity of Detroit Insurance Cost Estimates 2015-06-08Reform Pricing Exhibits 2015-06-07

d-insurance feasibility study

g e pinnacleactuarialresources

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