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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

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
Outline
  • History of No-Fault Auto Insurance
  • Data Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves
  • Methodology
  • Other Considerations
history of no fault auto insurance
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  • Five (5) of those states have repealed their no-fault laws, although Pennsylvania passed a new no-fault law in 1990
history of no fault auto insurance4
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
long term pip claims are unique
Long-Term PIP Claims are Unique
  • Traumatic Injuries
  • Age of claimants
  • Nature of expenses
  • Case reserving
data and assumptions needed to project unlimited long term no fault pip reserves
Data and Assumptions Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves
  • Payments to Date
  • Baseline average annual payment
  • Future Inflation
data and assumptions needed to project unlimited long term no fault pip reserves7
Data and Assumptions Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves
  • Mortality Table
    • Claimant Birth Date
    • Sex of Claimant
    • Impairment
data and assumptions needed to project unlimited long term no fault pip reserves8
Data and Assumptions Needed to Project Unlimited Long-Term No-Fault (PIP) Reserves
  • Reinsurance Parameters
    • Retention
    • Limit
    • Co-Participation
baseline average annual payment
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
baseline average annual payment10
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
future inflation
Future Inflation
  • Very important and sensitive
  • Historical Medical Inflation (Medical CPI)
  • Nature of payments
    • Care
    • Pharmaceuticals
    • Hospitalizations
    • Utilization
mortality
Mortality
  • Recently Published Table
  • Age of Claimant
  • Sex of Claimant
  • Impairment – Rated Age
reinsurance parameters
Reinsurance Parameters
  • Retention
  • Limit
  • Co-Participation
methodology
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)
other considerations
Other Considerations
  • Reinsurance
  • Structured Settlements
reinsurance considerations
Reinsurance Considerations
  • Limit – Inflation can erode limits more quickly than you think
  • Co-Participation in certain layers
reinsurance considerations17
Reinsurance Considerations
  • Collectibility
    • Direct versus Broker Market
    • Layers
  • Reporting Issues
  • Commutations
structured settlements
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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