Is it over yet?
(Perspectives on the Med Mal Crisis)
Robert J. Walling III, FCAS, MAAA
2006 CAS Spring Meeting
May 9, 2006
From Where’s Perspective
Historical, Cyclical Swings
160%
150%
140%
Note 5 Year change!
Net Operating Ratio
130%
120%
110%
100%
90%
80%
70%
60%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Medical Malpractice
All Lines
Homeowners
Workers Compensation
Other Liability
Private Passenger AL
Crisis Symptoms




Insurer adverse reserve developments
Insurer operating losses
Coverage availability problems
Coverage affordability problems
Industry Reserve Development
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Original Held
Mature Evaluation
Widespread, but not Uniform
2005 Reserve Developments for Insurers
in “Crisis States”
Report
Year ProAssurance Doctors Co.
One Year
Reserve
Development
1996
1997
1998
1999
2000
2001
2002
2003
2004
Report
Year
One Year
Reserve
Development
1996
1997
1998
1999
2000
2001
2002
2003
2004
-2,353
-1,541
1,206
375
-283
4,178
-713
-14,120
-10,544
FPIC
-984
2,849
4,528
2,631
-219
6,821
6,766
-6,465
-27,098
-198
-175
-128
-136
-1,625
-9,970
642
-4,869
-23,885
ISMIE
3,050
-2,174
2,952
7,976
465
371
-1,041
-1,912
-10,113
Physicians Northwest Healthcare
State
Ins. Mut.
Phys.
Svcs Grp. Volunteer
48
54
708
-652
854
-1,180
1,284
149
-1,724
33
25
50
-7
-373
203
-833
-813
-191
0
0
-250
413
-223
-2
-526
-4,616
-2,062
-2,214
1,078
4,610
662
-3,876
-2,854
2,051
5,868
-678
Med Mutual Med Mutual
Ct. Medical Med Assurance
MAG Mutual
MD
NC
ProMutual
Ins Co.
MS
-928
-393
4,267
1,894
-168
-2,738
5,937
-7,508
-10,491
-362
-147
-716
-859
660
-4,426
-3,108
-8,912
-5,602
14
-280
6
-261
582
1,680
-1,201
-551
-2,328
-407
238
599
574
2,419
494
5,315
8,328
7,529
-994
271
-973
-3,646
-4,144
-3,519
-4,762
-141
-2,120
-52
379
-294
2,124
188
-1,478
6,955
3,957
822
Schedule P Held Loss & DCC Ratios for
Insurers in “Crisis States”
Report
Year ProAssurance Doctors Co.
Held Net
Loss & DCC
Ratios
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Report
Year
Held Net
Loss & DCC
Ratios
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
93.3%
105.9%
104.8%
101.3%
101.0%
97.8%
82.4%
81.9%
78.6%
75.1%
FPIC
78.7%
110.9%
109.6%
96.2%
133.6%
104.6%
84.0%
66.8%
60.2%
70.6%
93.0%
82.2%
92.2%
71.6%
106.4%
116.5%
70.9%
73.6%
60.7%
62.0%
MAG Mutual
85.5%
86.4%
115.1%
111.8%
116.4%
128.2%
98.6%
84.7%
85.2%
83.4%
ISMIE
101.8%
107.4%
131.5%
137.0%
115.4%
128.4%
121.7%
91.0%
79.6%
88.4%
Physicians
Ins. Mut.
Northwest Healthcare
State
Phys.
Svcs Grp. Volunteer
93.7%
115.7%
108.9%
109.7%
106.9%
138.9%
103.6%
78.5%
74.8%
69.4%
89.7%
136.2%
129.2%
141.5%
180.9%
133.5%
104.3%
90.2%
82.4%
72.3%
95.8%
95.4%
97.4%
158.1%
122.5%
7.9%
123.7%
84.8%
62.6%
76.6%
89.8%
110.1%
116.4%
98.8%
101.3%
126.3%
111.8%
94.4%
83.1%
79.6%
Med Mutual Med Mutual
Ct. Medical Med Assurance
MD
NC
ProMutual
Ins Co.
MS
76.6%
60.5%
77.6%
102.1%
111.8%
117.8%
115.8%
109.5%
106.4%
82.7%
96.4%
91.1%
64.7%
80.6%
75.2%
78.6%
68.8%
74.6%
71.1%
67.1%
119.6%
131.7%
173.4%
119.9%
158.1%
153.6%
149.6%
132.6%
96.7%
87.5%
100.4%
104.1%
121.2%
141.4%
171.9%
204.3%
156.1%
130.8%
117.4%
172.8%
76.5%
96.7%
126.1%
191.2%
123.5%
176.5%
181.0%
130.4%
83.9%
54.9%
Schedule P Held Loss & DCC Ratios for
Insurers in “Crisis States”
200.0%
175.0%
150.0%
125.0%
100.0%
75.0%
50.0%
1999
2000
2001
2002
2003
2004
2005
ProAssurance
ISMIE
Physicians Ins. Mut.
Northwest Phys.
State Volunteer
FPIC
MAG Mutual
Med Mutual MD
ProMutual
Med Assurance of MS
Market Concentrations

Measured using HHI (Herfindahl-Hirschman Index)





Sum the square of the market share of each firm in a market
The index can range from 0 to 10,000
0 = Perfect competition
10,000 = Perfect Monopoly
U.S. Department of Justice considers a result of




less than 1,000 to be a competitive marketplace
1,000-1,800 to be a moderately concentrated marketplace
1,800 or greater to be a highly concentrated marketplace
Used by some regulators to determine rate regulation
Market Concentrations in “Crisis States”
State
AR
CT
FL
GA
IL
KY
MA
MS
MO
NV
NJ
NY
NC
OH
OR
PA
RI
TN
WA
WV
WY
1999
HHI
Index
3,132
2,241
986
2,036
2,860
1,615
5,519
2,271
1,138
2,100
4,321
3,443
2,022
1,407
1,599
1,568
2,705
3,254
3,767
3,099
3,264
2000
HHI
Index
3,413
2,020
882
1,833
2,226
1,403
5,579
2,430
974
2,103
4,156
3,472
2,111
1,381
1,872
1,730
2,826
3,075
3,955
2,875
3,518
2001
HHI
Index
2,807
1,829
891
2,110
2,705
1,275
4,689
2,150
882
1,815
3,089
3,184
1,391
1,116
1,722
1,253
2,414
2,464
3,285
2,788
3,596
2002
HHI
Index
2003
HHI
Index
1,752
1,491
1,013
1,684
2,507
1,004
3,670
1,786
822
945
3,797
3,557
1,350
1,310
1,803
1,114
2,468
2,446
2,399
1,797
3,054
Data Sources: 2004 Direct Written Premium: A.M. Best Page 15 data.
2,446
1,479
1,110
2,094
3,321
1,357
3,474
2,837
1,070
891
2,491
3,143
1,337
1,297
1,817
1,374
3,006
2,379
2,408
1,127
3,377
2004
HHI
Index
2,316
1,636
1,318
2,149
3,409
1,255
2,874
2,887
992
1,406
2,188
2,754
1,427
1,317
1,923
750
2,824
2,926
2,012
1,169
2,502
Annual
Exponential
Trend
-11.0%
-10.7%
3.8%
-0.3%
4.3%
-6.6%
-12.6%
1.4%
-2.9%
-22.2%
-11.2%
-1.6%
-12.0%
-2.1%
2.2%
-6.8%
0.8%
-8.2%
-13.0%
-22.1%
-0.7%
Change
2003-04
-5.3%
10.6%
18.8%
2.6%
2.6%
-7.5%
-17.3%
1.8%
-7.2%
57.8%
-12.1%
-12.4%
6.7%
1.5%
5.9%
-45.4%
-6.0%
23.0%
-16.4%
3.7%
-25.9%
A Call for Efficiency
A Call for Greater Efficiency
100%
Percentage of Insurer Expenses
90%
80%
The
current
system is
woefully
inefficient
70%
60%
50%
40%
30%
20%
10%
0%
Medical Malpractice
Losses ( Claimants' Share)
ULAE
Other Acquisition Expense
Group A & H
Private Passenger
Workers
Auto Liability
Compensation
of Business
Losses Line
( Attorneys'
Share)
ALAE
Commissions
Taxes, Licenses & Fees
General Expenses
VA BRNICP Efficiency
100%
90%
80%
Patient
Benefits
Supplier Goods and Services
70%
Staff Salary
Patient Legal Costs
60%
Other Patient Benefits
Patient Insurance Costs
50%
Housing & Assistive Technology
Prescriptions & Medical Equipment
40%
Hospital & Medical Services
Transportation
30%
20%
10%
0%
Home Nursing
Tort Reforms Impact on Efficiency







Damage caps by themselves do not improve
system efficiency
Other elements of MICRA should help
Some newer reforms may help too
Attorney fee caps
Birth Related Neurological Injury Funds (NICA)
Prelitigation screening
“I’m Sorry’ laws
I’m Sorry Laws





Physicians want more communication
Patients feel physicians are “hiding something”
In most states, expressions of regret or empathy are
admissible as evidence
Lexington, KY VA Hospital
“I’m Sorry” laws,




Enacted in CA, CO, FL, MA, OR, TN, TX, WA
AZ, ME and others are considering
Providers/staff can say “I’m sorry this happened to you”
CO only, “I’m sorry I did this”
without admissibility
I’m Sorry Laws

Insurers are:



Training providers on how to apologize
(mandatory)
Coordinating with claims
Initial results are significant





Reduced severities
Reduced loss adjustment expense
Reduced attorney involvement
(CO: 2 lawsuits in 433 claims)
Improved patient satisfaction
In many cases, much improved efficiency
Impact of “I’m Sorry” Laws





Focus on claims <$35,000
Company’s can match apology with
aggressive claims settlement strategy (e.g.
COPIC)
Increase efficiency at all costs (including
higher pure loss severity)
Reduces ALAE on small claims 35-65%
(3.5%-6.0% cost reduction overall)
Actually increases small claimant net
damages
Survey of “I’m Sorry” Laws by State
State
AZ
Year
Enacted
2005
CA
2001
CO
2003
FL
2004
90.4026 Acts of Sympathy
GA
2005
IL
2005
Acts of Apology and Regret
Acts of Apology and Explanation, with 72
HB 4847
Hour Time Limit
Bill
Notes
SB 1036 Acts of Apology and Responsibility
Acts of Sympathy
HB 1232 Acts of Apology, Sympathy and Fault
MT
2006
Pending
1986/2005
2006
Pending
2005
NC
2004
HB 669
OH
2004
HB 215
OK
2004
HB 2661 Acts of Apology and Sympathy
OR
2003
HB 3361 Acts of Apology and Regret
TN
2003
Acts of Sympathy
TX
1999
Acts of Sympathy
VA
2005
Acts of Sympathy
IA
MA
MI
HB 2716 Acts of Apology and Sympathy
Acts of Apology and Regret
HB 4259 Acts of Apology and Sympathy
HB 24
Acts of Apology and Sympathy
Acts of Apology. Allows offers to
undertake corrective or remedial treatment
or actions, and gratuitous acts
Acts of Apology and Sympathy
Case Law provides immunity for apologies
VT
WA
2004
WY
2004
SB 6645 Acts of Apology
HB 1004
Acts of Apology and Explanation
/ SB