the opportunity presented by medical malpractice databases and glm
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The Opportunity Presented by Medical Malpractice Databases and GLM
CAS GLM Seminar
October 4, 2004
Robert J. Walling, FCAS, MAAA
A Brief Recap
Cyclical Swings
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Net
Ope
ratin
g R
atio
Medical Malpractice All Lines Homeowners Workers Compensation Other Liability Private Passenger AL
Availability Problems Frontier – Rehabilitation 8/01 Reliance – Liquidation 10/01 St. Paul – Exits Market 12/01 PHICO – Liquidation 2/02 MIIX – Voluntary Run-off 5/02 Reciprocal of America Group – Liquidation 6/03 Legion – Liquidation 7/03
Over 30% of the 1999-2000 market is goneAnother 10-20% has been downgraded severely
enough to impact the availability of coverage
Availability Problems
State % DisplacedAR 52.6%DE 67.8%IA 37.8%KS 35.6%LA 36.5%MT 33.9%ND 36.2%NE 47.5%NH 46.7%
State % DisplacedNJ 53.4%NV 40.6%PA 43.1%PR 39.0%SC 60.5%SD 68.5%VT 36.8%WV 42.5%
Widespread, but not Uniform
A Brief Recap – Industry Perspective Severities Gone Wild ● Negative Outcomes, Unpredictable Costs Not Malpractice
(Timing & Magnitude) ● Market Exits Due to Entitlement Juries Inadequate Rates Big Attorney Pay Days Caps on Non-Economics ●Caps on Atty Cont. Fees
A Brief Recap – Trial Bar PerspectiveInsurance Companies Healthcare Providers Excessive Profits ● Repeat Offender Docs Destructive Competition ● Defensive Medicine Poor Investment Policy ● No Overall Medical Rate Gouging Outcome Improvement Must Need Better (More) ● Must Need Better (More) State
Regulation Oversight
Industry Reserve Development
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Original Held Mature Evaluation
Signs of Intrigue – “Destructive” Price Competition
“While an increase in litigation and higher damages awards are often blamed for rising premiums, insurance companies may be equally culpable due to their pricing policies of the 1990s.”
- Robert Wood Johnson Foundation
Signs of Intrigue - AffordabilityYear Premium Annual Change
2003 213,763 30.0%
2002 164,437 40.5%
2001 117,049 12.7%
2000 103,859 27.0%
1999 81,765 17.2%
1998 69,786 12.1%
1997 62,259 -7.3%
1996 67,141 +5.7%
Annual Average 16.7%
Broward County, FL General Surgeons Source: Medical Liability Monitor
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Medical Malpractice Private Passenger AutoLiability
Workers Compensation
Line of Business
Penn
ies
per D
olla
r of P
rem
ium
Losses ( Claimants' Share) Losses ( Attorneys' Share) ALAE ULAE Commissions Taxes, Licenses & Fees Other Acquisition Expense General Expenses
Regulators “Inescapable” Conclusion
Thecurrent
system iswoefully
inefficient
Regulators “Inescapable” Conclusion
Data for a conclusive answer is rarely available
Various States of Readiness
Got it (e.g. FL, ME) Thought they had it (e.g. OR) Just Getting Started (e.g. NC, VT, OH)
Florida Closed Claim Database Injury Location (e.g. Hospital, Delivery Room) Occurrence, Report, Suit, and Settlement Dates Patient Date of Birth, Sex Severity of Injury (e.g. Emotional, Death, Serious) Insured County & County of Suit Method & Stage of Settlement Arbitration indicator Insurer Type Insured Specialty (e.g. 80267- Pediatrics) Insured Limits Indemnity Paid (Medical, Wage & Other; future) Loss Adjustment (Defense Costs vs. Other ALAE) Non-Economic Loss
Predicted Values
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
0%
2%
4%
6%
8%
10%
12%
14%
Occ_Year
Severity Trends by Occurrence Year
Non-Economic Damages by Occurrence Year
Predicted Values
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0%
2%
4%
6%
8%
10%
12%
14%
Occ_Year
Predicted Values
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
Occ_Year
SEV_DESC (DEATH)
SEV_DESC (Emotional Only - Fright, no physical damage)
SEV_DESC (Permanent: Major -Paraplegia, blindness, loss of twolimbs, brain damage.)
SEV_DESC (Permanent: Minor -Loss of fingers, loss or damage to organs. Includes non-disabling injuries.)
SEV_DESC (Permanent: S ignificant - Deafness, loss of limb, loss of eye, loss of one kidney or lung.)
SEV_DESC (Temporary: Major - Burns, surgical material left, drug side effect, brain damage. Recovery delayed.)
SEV_DESC (Temporary: Minor - Infections, misset fracture, fall in hospital. Recovery delayed.)
SEV_DESC (Temporary: S light -Lacerations, contusions, minor scars, rash. No delay.)
Claim Severity by Injury Type Over Time
Predicted Values
-1000
1000
3000
5000
7000
9000
11000
0 1 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25HIGHINJ
0
50
100
150
200
250
300
ATTORNEY (3) ExposureATTORNEY (2) ExposureATTORNEY (1) ExposureATTORNEY (2)ATTORNEY (1)
Impact of Attorney Involvement on Claim Severity
Severities by Settlement LagPredicted Values
0
10,000
20,000
30,000
40,000
50,000
60,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Settlement_Lag
ALAE / Loss+ALAE by Settlement LagPredicted Values
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Settlement_Lag
Severities By Claim TypePredicted Values
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
DEA TH Emotional Only -Fright, no physical
damage
NO RES PONSE Permanent: Grave -Quadraplegia,severe brain
damage, lifelongcare or fatalprognosis.
Permanent: Major -Paraplegia,
blindness, loss oftwo limbs, brain
damage.
Permanent: Minor -Loss of fingers,
loss or damage toorgans. Includes
non-disablinginjuries.
Permanent:S ignificant -
Deafness, loss oflimb, loss of eye,loss of one kidney
or lung.
Temporary: Major -Burns, surgicalmaterial left, drugside effect, brain
damage. Recoverydelayed.
Temporary: Minor -Infections, misset
fracture, fall inhospital. Recovery
delayed.
Temporary: S light -Lacerations,
contusions, minorscars, rash. No
delay.
SEV_DESC
Differences by Age & SexPredicted Values
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
10 20 30 40 50 60 70 80
IP_Age
IP_Sex (F)
IP_Sex (M)
Other Issues Reviewed
Impact of Local Courts Differences by Specialty Impact of Insured Limits Impact of Standard vs. Alternative Mkts Trends by Severity of Injury Location of Injury
Future GLM Directions Better databases will be built Better matching exposures will be available Add US Chamber of Commerce Litigation
Rank to Multi-State Analysis Impact of Loss Prevention and System
Efficiency Measures Look for Shifts to Economic Damages After
Non-Economic Damage Caps
Future Medical Malpractice Directions Trial Lawyers & Insurers will still disagree New medical technology will be developed Diagnoses will not be perfect The struggle to improve medical care;
at affordable costs; with reasonable compensation; and an efficient system from strong, stable, responsible insurers will continue…
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