Malpractice Loss Trends 2007 Update DRI, March 15, 2007 - PowerPoint PPT Presentation

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Malpractice Loss Trends 2007 Update DRI, March 15, 2007

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  1. Malpractice Loss Trends 2007 UpdateDRI, March 15, 2007

  2. Kimber J. Lantry, Executive Vice President Hudson Insurance Group 851 Napa Valley Corporate Way, Suite N Napa, CA 94558 (707) 225-3301 (707) 224-6936 FAX klantry@hudsoninsgroup.com

  3. Medical Malpractice IndustryCombined Ratio Source: Bests Aggregates & Averages, 2005 Property & Casualty edition

  4. Selected Company Results2005Source: A. M. Best Statistical Study, August 28, 2006

  5. SEVERITY

  6. Sources of Medical Malpractice Data • State by state filings - Little hospital data available as hospitals are written surplus lines - Quality varies by size, state requirements and quality of filing • St. Paul data – no longer available • Aon Study – largest available database - 84 hospitals; 63,000 bed equivalents; $250M premium in first $1M layer • Jury Verdicts Research - Countrywide, accurate, but only about 5% of all medical malpractice, skewed towards high severity • National Practitioners Data Base - Physician data only; no hospital data - Only closed claims = 5 year lag - No expense costs included • PIAA Data - Fear of competitors’ use = limited utility

  7. Median Medical Malpractice Jury VerdictsSource: Jury Verdicts Research, 2006 LRP Publications

  8. Mean Medical Malpractice Jury VerdictsSource: Jury Verdicts Research, 2005 LRP Publications

  9. National Practitioners Data BaseSeverity AnalysisSource: National Practitioner Data Bank Public Use File, June 30, 2006

  10. PIAA Data BaseSeverity AnalysisSource: PIAA, 2004

  11. Aon Risk Consultants, Inc., Medical Professional LiabilityPhysician Professional Liability BenchmarkHISTORICAL SEVERITY * *Based on non-zero claims only; Individual losses limited to $2M

  12. FREQUENCY

  13. FrequencyPer Earned Unit of ExposureSource: PIAA Data

  14. National Practitioners Data BaseFrequency AnalysisSource: National Practitioners Data Bank public use file, June 30, 2006

  15. Aon Risk Consultants, Inc., Medical Professional LiabilityPhysician Professional Liability BenchmarkHISTORICAL FREQUENCY PER CLASS 1 EQUIVALENT * * Number of claims per physician; for example, the 2003 year indicates 7 claims per 100 class 1 physicians.

  16. FREQUENCY AND SEVERITY TREND ANALYSIS

  17. Aon Risk Consultants, Inc., Medical Professional LiabilityPhysician Professional Liability BenchmarkHISTORICAL LOSS COSTS PER CLASS 1 EQUIVALENT * *Individual losses limited to $2M

  18. Frequency and Severity • Frequency = number of claims reported • Severity = average cost per claim • Frequency & severity trend factor • General Consensus: 6% - 7%, higher in jurisdictions without tort reform

  19. PHYSICIAN ISSUES

  20. Hospital vs. Physician Loss CostsSource: 2006 Update on U.S. Tort Cost Trends, Towers Perrin Tillinghast

  21. MEDICAL MALPRACTICE INSURANCE COMPANY RESULTS

  22. Medical Malpractice Premium Volume • 2005: $9,124,374 • Source: 2006 Best’s Aggregates & Averages – Property/Casualty • This doesn’t count: • Self insurance • Captives • Patient compensation funds • Risk retention and risk purchase groups • JUAs • Trusts

  23. Accident Year vs. Calendar Year • Accident Year = Results from all policies written during that year • Calendar Year = Results from all polices written during that year plus any reserve changes made to prior years • Virtually all published data is on a calendar year basis

  24. Loss Ratios for Medical Malpractice IndustrySource: 2006 Bests Aggregates & Averages – Property/Casualty

  25. Loss Adjusting Expense Ratios for Medical Malpractice IndustrySource: 2006 Bests Aggregates & Averages – Property/Casualty

  26. Incurred Loss Ratios for Medical Malpractice IndustryPure Loss + Allocated Loss Adjusting Expenses (ALAE) = Incurred Losses Source: 2006 Bests Aggregates & Averages – Property/Casualty

  27. Loss Triangles Source: Schedule P – Part 3F – Section 2 – Medical Malpractice Claims Made

  28. Expense RatioSource: 2006 Bests Aggregates & Averages – Property/Casualty • Consists of: • Costs to run company • Commissions to agents & brokers • Premium taxes

  29. Combined Ratio Source: 2006 Bests Aggregates & Averages – Property/Casualty

  30. Incident Date to Trial DateMedium Number of MonthsJury Verdicts Research, 2005

  31. Occurrence to Settlement Lag(in number of years)Source: National Practitioners Data Bank public use file, June 30, 2006

  32. Filing Date to Trial DateMedium Number of MonthsJury Verdicts Research, 2005

  33. Investment IncomeSource: 2006 Bests Aggregates & Averages – Property/Casualty • Med Mal companies hold on to each premium dollar for an average of 3 years

  34. Overall Operating Ratio“The Bottom Line”Source: 2006 Bests Aggregates & Averages – Property/Casualty

  35. Malpractice Industry Premium and Losses 1976-2005 Medical Malpractice Accident-Year Results ($ in millions)

  36. TORT REFORM

  37. Average Loss per Physician in States With and Without CapsLoss ($) per PhysicianSource: Richard S. Biondi & Arthur Gurevitch Contingencies November/December 2003 States without caps States with caps

  38. Malpractice Claims per Physician in States With & Without Caps - Claims per 100 PhysiciansSource: Richard S. Biondi & Arthur Gurevitch Contingencies November/December 2003 States without caps States with caps

  39. Differential in Loss per Physician in States With & Without CapsCapped States % of Uncapped StatesSource: Richard S. Biondi & Arthur Gurevitch Contingencies November/December 2003

  40. Malpractice Premium per Physician in States With & Without CapsPremium ($) per PhysicianSource: Richard S. Biondi & Arthur Gurevitch Contingencies November/December 2003 States without caps States with caps

  41. National Practitioners Data BaseFrequency Analysis – MichiganNOTE: Michigan enacted caps on non-economic damages in 1994Source: National Practitioners Data Bank public use June 30, 2006

  42. National Practitioners Data BaseSeverity Analysis - MichiganSource: National Practitioner Data Bank Public Use File, June 30, 2006

  43. Tort Reform • In 1975-77, in 1985-87 and in 2001-2003 numerous states enacted medical malpractice tort reform. • Five to seven years later (1980-82 and 1990-92), after court challenges to virtually every element of tort reform, approximately 50% was struck down by the states’ high courts. By that standard, we should start seeing the 2001-2003 tort reform start being struck down in 2007.

  44. State by State Tort Reform Initiatives Limits on Noneconomic/Pain and Suffering Damage Awards (as of March 15, 2005) ND $500k WA VT MT $250k MN ME $400k* SD $500k WI $350k1 ID $250k OR NH MI $500k* WY NY NE $500k1 IA MA - $500k OH $350k PA NV $350k IN $250k1 RI UT $400k CO $300k IL KS $250k MO $350k WV $250k CT CA KY VA* OK $300k NJ $250k TN NM $200k*1 NC DE AR AZ SC MS $350k GA $350k MD -$650k+* AL TX $250k DC LA $500k1* FL $500k* AK $400k* None < $250k $300 - 375k $400- 500k $500k and up HI $375k Source – National Conference of State Legislatures (January 13, 2005) *See notes for additional details 1 Cap is limit of liability for Providers; remainder to PCF

  45. THE FUTURE

  46. Medical Malpractice Crisis – What Crisis? HOSPITALS • Soft market has returned. Hospital excess insurance is the most competitive, but insurance bidding wars are increasingly common for primary as well. PHYSICIANS • Rate filing are commonly for modest declines. Large physician groups are enjoying insurance company bidding wars. Numerous carriers are aggressively attempting to expand market share.

  47. Factors Affecting The Market • “Class of 2001” is mostly doing well Arch Capital Ace Gen Star Endurance Specialty Berkeley Medical Excess Underwriters OneBeacon Darwin Underwriters • Availability of reinsurance support for new entrants • A plethora of risk retention groups and admitted physician company startups • Rush to self-insurance and captives is over

  48. The Future • Steadily softening market for the next 5 years or more • Continued new market entrants as industry profitability becomes clearer • Higher limits, broader policies • Likely to be followed by: • Unwinding of captives as commercial insurance market becomes cheaper • Followed by…inexorable rising of severity…and the next malpractice crisis