non-medical professional liability denise olson, fcas, maaa cna pro
TRANSCRIPT
Non-Medical Professional Liability
Denise Olson, FCAS, MAAA
CNA Pro
Non-Medical Professional Liability
Errors and Omissions / Malpractice Usually involves breach of contract,
misrepresentation, negligence fraud Damages - typically economic, no punitives Examples: Lawyers, Accountants,
Architects & Engineers, Design Professionals, Actuaries, Real Estate Agents
Non-Medical Professional Liability
Coverage is typically claims made Claims are covered in the year first reported Cleaner due to coverage issues - when did the
cause accrue? Shortens the tail considerably
Expenses can be inside or outside the limit Defense of claims is a primary coverage
benefit
Non-Medical Professional Liability - Considerations
Coverage provisions Book profile Limit and Deductible profiles How does the Limit apply (excess of
deductible)
Non-Medical Professional Liability - Other Unique Features
Classifications - Not all lawyers are equal Exposure Base - What is appropriate can
vary Claims handling is a key consideration Very little industry data available State variations can be important
Non-Medical Professional Liability - Pricing Issues
Extended Reporting Period Step Rating Retroactive Dates
Step Rate
Definition & Purpose Graphical Representation of Area covered
in each step Determination of Proper Step Rates Other Uses for Analysis
Definition & Purpose
Step is the level of maturity of the policy Step 1 (sometimes called Step 0) is the first
year after retroactive date Retroactive date is set for date after which prior
acts will be covered Adjusts for fact that policies with more
recent retroactive dates will have fewer and possibly less severe claims
O ccurrenceYear 1995 1996 1997 1998 1999 2000 20011995 Step 11996 Step 21997 Step 31998 Step 41999 Step 52000 Step 62001 Step 7
Shaded Area is Covered
Policy Year
1st Policy Effective date: 1/1/1995Annual policies thereafterRetroactive Date: 1/1/1995
Step Rate Graph Amount covered by each policy increases
with each year after the retroactive date
Rates need adjustment to account for increasing exposure
Evaluation of Step Rate Factors
Two main methods of handling Ultimate incurred loss ratio analysis by Step Step Rate Relativity Analysis based on losses
only
Ultimate Incurred Loss Ratio
Separate premium data by step Split losses by applicable policies Adjust for varying degrees of deductible
and limit (basic limits) and mix of business Use loss ratio differentials to determine if
current factors are appropriate
Ultimate Incurred Loss Ratio
Advantages Occurrence dates are
irrelevant If only relativity
adjustments are needed, this is simpler
Data quality issues are less likely to occur
Disadvantages Step Rate calculation
changes can’t be tested Need to match losses
by policies Low volume of data at
lower steps usually
Loss Only Method
Separate incurred loss data by lag Determine % of incurred losses by step Adjust for varying deductibles, limits, and
sizes of firm Develop to ultimate
Loss Only MethodAdvantages
Premium data not needed
Can use for ERP analysis
Can use to develop step rates without experience
Disadvantages Mix of business may
still be an issue Occurrence dates are
needed and must be fairly accurate
More complex
Loss Only Method - Example
Used Lawyers E&O Data Current Rating Method
Average Number of Years Experience - capped Same whether full prior acts or not Base Rate multiplied by number of attorneys
New Approach Each Attorney rated individually Base rates then added
Loss Only Method - Example
Pull all available data Check data for accuracy of occurrence dates Separate by Accident Year and Lag Make adjustments for differences between
incurred lag pattern and ultimate lag pattern Select step factors
Loss Only Method - Example
Data errors: Sampling performed Approximately 30% of all claims are
miscoded by occurrence date Assumed that most errors set claims made
date as occurrence date Adjusted Step 1 selection to reflect data
errors
Loss Only Method - Example
Adjusting for Ultimate Values Claims with larger lags tend to have higher
ultimate claim amounts due to delay Due to large amounts - newer years will
have less loss in the higher steps Development is not as great as straight loss
analysis
Loss Only Method - Other uses
Can use results for Extended Reporting Period pricing
Use losses by lag expected Discount to current Treated like an occurrence policy without
new claims possible