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BI Settlement Issues I. IRC Studies (1977+, latest 2002 CY) AIB Studies (1986+, latest 1996 AY) Medicals Dominate Injury Types General Damages. BI Settlement Issues II. Investigation Suspicion of Fraud and Build-up Settlement Negotiation Low Impact Collision Passengers Bad Faith

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BI Settlement Issues I

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BI Settlement Issues I

  • IRC Studies (1977+, latest 2002 CY)

  • AIB Studies (1986+, latest 1996 AY)

  • Medicals Dominate

  • Injury Types

  • General Damages


BI Settlement Issues II

  • Investigation

  • Suspicion of Fraud and Build-up

  • Settlement Negotiation

  • Low Impact Collision

  • Passengers

  • Bad Faith

  • Evolution Over Time


Injury Type Changes


Total Claimed Medical Charges by Type of Service


General Damages

  • Special Damages are Claimant Economic Losses

    • Medical Bills

    • Wage Loss

    • Other Economic

  • General Damages are Residual of Negotiated Settlement Less Specials

    • “Three Times Specials” is a Myth


Table 1


Table 2


Negotiated Settlements

  • Specials may be Discounted or Ignored

  • Medicals: Real or Built-up?

  • Information from Investigation

  • Independent Medical Exams (IMEs)

  • Special Investigation

  • Suspicion of Fraud or Build-up


Settlement Modeling

  • Major Claim Characteristics

  • Tobit Regression for Censored Data

    (right censored for policy limits)

  • Evaluation Model for Objective “Facts”

  • Negotiation Model for all Other “Facts”, including suspicion of fraud or build-up


Evaluation Variables

Prior Tobit Model (1993AY)

  • Claimed Medicals (+)

  • Claimed Wages (+)

  • Fault (+)

  • Attorney (+18%)

  • Fracture (+82%)

  • Serious Visible Injury at Scene (+36%)

  • Disability Weeks (+10% @ 3 weeks)

    New Model Additions (1996AY)

  • Non-Emergency CT/MRI (+31%)

  • Low Impact Collision (-14%)

  • Three Claimants in Vehicle (-12%)

  • Same BI + PIP Co. (-10%) [Passengers -22%]


Negotiation Variables

New Model Additions (1996AY)

  • Atty (1st) Demand Ratio to Specials (+8% @ 6 X Specials)

  • BI IME No Show (-30%)

  • BI IME Positive Outcome (-15%)

  • BI IME Not Requested (-14%)

  • BI Ten Point Suspicion Score (-12% @ 5.0 Average)

  • [1993 Build-up Variable (-10%)]

  • Unknown Disability (+53%)

  • [93A (Bad Faith) Letter Not Significant]

  • [In Suit Not Significant]

  • [SIU Referral (-6%) but Not Significant]

  • [EUO Not Significant]

    Note: PIP IME No Show also significantly reduces BI + PIP by

    discouraging BI claim altogether (-3%).


Total Value of Negotiation Variables


Actual parameters for negotiation and evaluation models, with and without suspicion variable, are shown in the hard copy handout


References

  • Derrig, R.A. and H.I. Weisberg [2003], Auto Bodily Injury Claim Settlement in Massachusetts, Final Results of the Claim Screen Experiment, Massachusetts DOI 2003-15.

  • Derrig, R.A. and H.I. Weisberg, [2003], Determinants of Total Compensation for Auto Bodily Injury Liability Under No-Fault: Investigation, Negotiation and the Suspicion of Fraud, Working paper, Automobile Insurers Bureau of MA.

  • Derrig, R.A., H.I. Weisberg and Xiu Chen, [1994], Behavioral Factors and Lotteries Under No-Fault with a Monetary Threshold: A Study of Massachusetts Automobile Claims, Journal of Risk and Insurance, 61:2, 245-275.

  • Ross, Lawrence H. [1980], Settled out of Court, (Chicago, III: Aldine).

  • Insurance Research Council [1999], Injuries in Auto Accidents, An Analysis of Auto Insurance Claims. Malvern, PA

  • Insurance Research Council [ 2003], Auto Injury Insurance Claims. Countrywide Patterns in Treatment, Cost, and Compensation, Malvern PA

  • Abrahamse, A. and Stephen J. Carroll [1999], The Frequency of Excess Claims for Automobile Personal Injuries, Automobile Insurance: Road Safety, New Drivers, Risks, Insurance Fraud and Regulation, Claire Laberge-Nadeau, and Georges Dionne, Eds., Kluwer Academic Publishers, 131-151.


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