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Reserving for Unlimited Long-Term No-Fault (PIP) Claims PowerPoint PPT Presentation


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Reserving for Unlimited Long-Term No-Fault (PIP) Claims. 2008 Casualty Loss Reserve Seminar Session 6 – Personal Automobile Reserving September 11, 2007 San Diego, CA Presentation by John R. Forney, FCAS. Outline. History of No-Fault Auto Insurance

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Reserving for Unlimited Long-Term No-Fault (PIP) Claims

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Reserving for unlimited long term no fault pip claims l.jpg

Reserving for Unlimited Long-Term No-Fault (PIP) Claims

2008 Casualty Loss Reserve Seminar

Session 6 – Personal Automobile Reserving

September 11, 2007

San Diego, CA

Presentation by John R. Forney, FCAS


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Outline

  • History of No-Fault Auto Insurance

  • Data Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves

  • Methodology

  • Other Considerations


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History of No-Fault Auto Insurance

  • Theory was developed in the mid-1960’s to provide first party benefits while restricting the right to sue third parties

  • Sixteen (16) states and Puerto Rico adopted some form of no-fault auto insurance in the early- to mid-1970’s

  • Five (5) of those states have repealed their no-fault laws, although Pennsylvania passed a new no-fault law in 1990


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History of No-Fault Auto Insurance

  • Most states provide for limited first-party medical benefits

  • Pennsylvania, New Jersey, and Michigan have provided unlimited first-party medical

    • Pennsylvania until 1984 no-fault repeal

    • New Jersey until 1990 reform (benefits in excess of $75K ceded to UCJF)

    • Michigan is still unlimited

  • These are the claims I will be talking about today


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Long-Term PIP Claims are Unique

  • Traumatic Injuries

  • Age of claimants

  • Nature of expenses

  • Case reserving


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Data and Assumptions Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves

  • Payments to Date

  • Baseline average annual payment

  • Future Inflation


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Data and Assumptions Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves

  • Mortality Table

    • Claimant Birth Date

    • Sex of Claimant

    • Impairment


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Data and Assumptions Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves

  • Reinsurance Parameters

    • Retention

    • Limit

    • Co-Participation


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Baseline Average Annual Payment

  • Historical Payments

    • Amounts

    • Nature of payments

      • Consistency

      • Less than annual, e.g. prostheses, pain medication pumps

      • Pharmaceuticals

      • Care – Who is providing?

      • Hospitalizations


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Baseline Average Annual Payment

  • Discussions with Claims Department Personnel

    • What are the causes of historical inconsistencies?

    • What might change?

    • Any unusual payments expected?

  • LAE

    • Medical bill repricing

    • IME’s


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Future Inflation

  • Very important and sensitive

  • Historical Medical Inflation (Medical CPI)

  • Nature of payments

    • Care

    • Pharmaceuticals

    • Hospitalizations

    • Utilization


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Mortality

  • Recently Published Table

  • Age of Claimant

  • Sex of Claimant

  • Impairment – Rated Age


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Reinsurance Parameters

  • Retention

  • Limit

  • Co-Participation


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Methodology

  • Calculate annual paid for each future year using baseline and inflation rate

  • Calculate ceded part of annual payment

  • Calculate probability of survival at each age y (Dy/Dx), where x=current age

  • Discount each annual payment for mortality (payment times Dy/Dx)


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Other Considerations

  • Reinsurance

  • Structured Settlements


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Reinsurance Considerations

  • Limit – Inflation can erode limits more quickly than you think

  • Co-Participation in certain layers


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Reinsurance Considerations

  • Collectibility

    • Direct versus Broker Market

    • Layers

  • Reporting Issues

  • Commutations


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Structured Settlements

  • Provide certainty for insurer

  • Settlement is “discounted”

  • Need agreement with claimant/attorney and court approval

  • PA law nullifies them in certain circumstances


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Questions and (Maybe) Answers


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