1 / 31

CAS 2004 Seminar on Ratemaking

CAS 2004 Seminar on Ratemaking. The Medical Malpractice Insurance Crisis. CAS 2004 Seminar on Ratemaking. This medical malpractice crisis didn’t occur overnight. CAS 2004 Seminar on Ratemaking. This medical malpractice crisis didn’t occur overnight.

kalila
Download Presentation

CAS 2004 Seminar on Ratemaking

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. CAS 2004 Seminar on Ratemaking The Medical MalpracticeInsurance Crisis

  2. CAS 2004 Seminar on Ratemaking This medical malpractice crisis didn’t occur overnight.

  3. CAS 2004 Seminar on Ratemaking This medical malpractice crisis didn’t occur overnight. We’ve been through medical malpractice crisis periods before.

  4. CAS 2004 Seminar on Ratemaking • This medical malpractice crisis didn’t occur overnight. • We’ve been through medical malpractice crisis periods before. • Although not quite as EXTREME!

  5. Historical Results Medical Malpractice Industry – Loss + LAE Ratios 1985 : 149.3% 2001 : 131.1% 1989 : 73.2% Loss + LAE Ratios

  6. Historical Results Medical Malpractice Industry – Expense Ratios Loss + LAE Ratios Expense +Dividend Ratios

  7. Historical Results Medical Malpractice Industry – Combined Ratios Loss + LAE Ratios Expense + Dividend Ratios Combined Ratios

  8. Historical Results Medical Malpractice Industry - Combined Ratios 2001 : 153.3% 1985 : 163.5% 1989 : 89.1% Combined Ratios

  9. Historical Results Medical Malpractice Industry – Investment Ratios 1992 : 51.5% 2002 : 12.4% Combined Ratios InvestmentRatios

  10. Historical Results Medical Malpractice Industry – Operating Ratios 2001 : 134.3% 1985 : 126.1% InvestmentRatios Operating Ratios Combined Ratios

  11. Historical Operating Results Medical Malpractice Industry vs. P/C Industry P/C Industry Medical Malpractice Industry InvestmentRatios Combined Ratios Operating Ratios

  12. Recap of Issues Leading to the Current Crisis Intense competition during the 90s soft market Loss experience worsened Rising medical inflation Investment returns declined Prior year reserve redundancies depleted Reinsurance market hardened Reduced capacity

  13. States in Crisis - 2003 Source: American Medical Association

  14. The Situation in Pennsylvania • CAT Fund (Mcare Fund) • Established 1975 • Originally covered $1 million xs $200,000 • Funded on a pay-as-you-go basis • Unfunded liability of $2+ billion • Sins of past become burdens of current providers • Through recent legislation is being phased out by raising underlying limits – fund now covers $500,000 xs $500,000.

  15. The Situation in Pennsylvania • Malpractice limits of $1.2 million (recently changed to $1.0 million) required to practice • Availability Problem • Insolvency of four major carriers between 1990 and 1998 • PHICO, PIC, PIE, AHSPIC • Withdrawal of St. Paul • MIIX and Princeton non-renewed PA physicians in 2002

  16. The Situation in Pennsylvania • Recent Legislative Changes • Tort Reforms (Do NOT include limits on non-economic damages) • Insurance Reforms • Reduction of required primary limits to $1m • Phase out of Mcare Fund • Mcare abatement for physicians • Patient Safety Reforms

  17. A+ A A- A A- A B+ A++ A E 1996 — Top 20 Writers Early ‘98 AM Best Company/Group Rating Rank 1 St. Paul Group 2 CNA Insurance Group 3 MLMIC — NY 4 Medical Protective Company 5 Health Care Indemnity Inc. 6 Doctors Company Insurance Group 7 Illinois State Medical Exchange 8 AIG 9 MMI Companies Group 10 PIE Mutual Insurance Co.

  18. A+ A A- A A- A B+ A++ A E 1996 — Top 20 Writers Early ‘98 AM Best Company/Group Rating Rank 1 St. Paul Group 2 CNA Insurance Group 3 MLMIC — NY 4 Medical Protective Company 5 Health Care Indemnity Inc. 6 Doctors Company Insurance Group 7 Illinois State Medical Exchange 8 AIG 9 MMI Companies Group 10 PIE Mutual Insurance Co. GONE FROM THE MARKET

  19. MLMIC — NY B Medical Protective Company A (neg) Doctors Company Insurance Group A- 1996 — Top 20 Writers Early ‘98 AM Best Company/Group Rating Rank 1 St. Paul Group 2 CNA Insurance Group A MLMIC — NY 3 A- 4 Medical Protective Company A 5 Health Care Indemnity Inc. A- 6 Doctors Company Insurance Group A 7 Illinois State Medical Exchange B+ 8 AIG A++ 9 MMI Companies Group 10 PIE Mutual Insurance Co. DOWNGRADED

  20. NR-4 A- A A- A A A- A A- A- 1996 — Top 20 Writers Early ‘98 AM Best Company/Group Rating Rank 11 Physicians Reciprocal Group 12 Princeton Insurance Companies 13 MIIX Group 14 Frontier Insurance Group 15 Norcal Mutual Insurance Company 16 ProAssurance 17 PHICO Ins. Co. 18 SCPIE 19 ProMutual 20 Farmers Insurance Group

  21. NR-4 A- A A- A A A- A A- A- 1996 — Top 20 Writers Early ‘98 AM Best Company/Group Rating Rank 11 Physicians Reciprocal Group 12 Princeton Insurance Companies 13 MIIX Group 14 Frontier Insurance Group 15 Norcal Mutual Insurance Company 16 ProAssurance 17 PHICO Ins. Co. 18 SCPIE 19 ProMutual 20 Farmers Insurance Group GONE FROM THE MARKET

  22. NR-4 Princeton Insurance Companies B- A- A A- A ProAssurance A A- A- SCPIE B A A- A- 1996 — Top 20 Writers Early ‘98 AM Best Company/Group Rating Rank 11 Physicians Reciprocal Group 12 Princeton Insurance Companies 13 MIIX Group 14 Frontier Insurance Group 15 Norcal Mutual Insurance Company 16 ProAssurance 17 PHICO Ins. Co. 18 SCPIE 19 ProMutual 20 Farmers Insurance Group DOWNGRADED

  23. Year 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 MEDICAL MUTUALLiability Insurance Society of Maryland Medical Mutual Payout 12 – 31 ALAE Indemnity (In millions) (In millions) $ 75.7 $ 17.6 $ 39.6 $ 16.3 $ 33.9 $ 15.6 $ 32.7 $ 14.6 $ 32.4 $ 15.9 $ 33.5 $ 15.2 $ 37.9 $ 15.3 $ 25.9 $ 13.3 $ 28.2 $ 12.2 $ 35.7 $ 13.8 $ 24.7 $ 14.1

  24. Medical Mutual Liability Insurance Society of MarylandAverage Indemnity Paid per Claims Closed with Indemnity 386,042 271,518 266,634 255,325 233,605 223,228

  25. MEDICAL MUTUALLiability Insurance Society of Maryland ReportYear Dollar AmountPaid PhysicianExposures Numberof Claims 1998–2001 28,268 69 $54.6 Million 1994–1997 27,235 44 $31.7 Million % Change: 4% 57% 72% (INCREASE) (INCREASE) (INCREASE) Closed Claims of $400,000 or More. NOTE: 4 Report Years at End of 5 Years

  26. Percent* of Paid Claims with Indemnity Payment >=$1M *As a percentage of Paid Claims with Indemnity Payment, Data as of 2/15/04

  27. Selection of Recent Cases with High Economic Damages ALLEGEDECONOMICDAMAGES INJURY $ 15.4 Million $ 15.75 Million $ 19.4 Million $ 22.4 Million $ 33.6 Million $ 17.4 Million $ 5.0 Million $ 10.2 Million $ 3.9 Million 37YOM alleging total disability due to headaches Birth-related damages, CP Birth-related damages, brain injury Birth-related damages, CP 5-month-old, brain injury, CP Birth-related damage, profound retardation 73YOM, quadriplegia Birth-related damages, CP 38YOF, reflex sympathetic dystrophy

  28. MEDICAL MUTUALLiability Insurance Society of Maryland “Among the malpractice claims we studied, the severity of the patient’s disability, not the occurrence of an adverse event or an adverse event due to negligence, was predictive of payment to the plaintiff.” Source: “Relation between Negligent Adverse Events and the Outcomes of Medical Malpractice Litigation,” by T.A. Brennan, C.M. Sox, and H.R. Burstin; New England Journal of Medicine, 12/26/96.

  29. ReportYear ProjectedUltimate Averageof Range Increase 2001 2000 1999 1998 1997 1996 1995 1994 32% 25% 26% 25% 22% 23% 23% 20% 27.0% +22.7% 22.0% % of Claims Closed with Paid Indemnity Projected Ultimate % Paid

  30. Summary-Insurance Company Perspective Capacity has left the market; Capital is stressed for those left standing Severity is the driving force Companies cannot afford to underprice, but uncertainty prevails Continued need for tort reforms Continued external pressures to slow down rate increases

  31. CAS 2004 Seminar on Ratemaking The Medical MalpracticeInsurance Crisis

More Related