The Opportunity Presented by
Medical Malpractice
Databases and GLM
CAS GLM Seminar
October 4, 2004
Robert J. Walling, FCAS, MAAA
A Brief Recap
Cyclical Swings
160%
150%
140%
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
Availability Problems







Frontier – Rehabilitation 8/01
Reliance – Liquidation 10/01
St. Paul – Exits Market 12/01
PHICO – Liquidation 2/02
MIIX – Voluntary Run-off 5/02
Reciprocal of America Group – Liquidation 6/03
Legion – Liquidation 7/03
Over 30% of the 1999-2000 market is gone
Another 10-20% has been downgraded severely
enough to impact the availability of coverage
Availability Problems
State
% Displaced
State
% Displaced
AR
52.6%
NJ
53.4%
DE
67.8%
NV
40.6%
IA
37.8%
PA
43.1%
KS
35.6%
PR
39.0%
LA
36.5%
SC
60.5%
MT
33.9%
SD
68.5%
ND
36.2%
VT
36.8%
NE
47.5%
WV
42.5%
NH
46.7%
Widespread, but not Uniform
A Brief Recap – Industry Perspective


Severities Gone Wild
Unpredictable Costs
(Timing & Magnitude)



Entitlement Juries
Big Attorney Pay Days
Caps on Non-Economics
● Negative Outcomes,
Not Malpractice
● Market Exits Due to
Inadequate Rates
●Caps on Atty Cont. Fees
A Brief Recap – Trial Bar Perspective
Insurance Companies
 Excessive Profits
 Destructive Competition
 Poor Investment Policy
 Rate Gouging
 Must Need Better (More)
State Regulation
Healthcare Providers
● Repeat Offender Docs
● Defensive Medicine
● No Overall Medical
Outcome Improvement
●Must Need Better (More)
Oversight
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
Signs of Intrigue –
“Destructive” Price Competition
“While an increase in litigation and higher damages
awards are often blamed for rising premiums,
insurance companies may be equally culpable due
to their pricing policies of the 1990s.”
- Robert Wood Johnson Foundation
Signs of Intrigue - Affordability
Year
Premium
Annual Change
2003
213,763
30.0%
2002
164,437
40.5%
2001
117,049
12.7%
2000
103,859
27.0%
1999
81,765
17.2%
1998
69,786
12.1%
1997
62,259
-7.3%
1996
67,141
+5.7%
Annual Average
Broward County, FL General Surgeons
Source: Medical Liability Monitor
16.7%
Regulators “Inescapable” Conclusion
100%
90%
The
current
system is
woefully
inefficient
Pennies per Dollar of Premium
80%
70%
60%
50%
40%
30%
20%
10%
0%
Medical Malpractice
Private Passenger Auto
Liability
Workers Compensation
Line of Business
Losses ( Claimants' Share)
Losses ( Attorneys' Share)
ALAE
ULAE
Commissions
Taxes, Licenses & Fees
Other Acquisition Expense
General Expenses
Regulators “Inescapable” Conclusion
Data for a conclusive answer is rarely available
Various States of Readiness



Got it (e.g. FL, ME)
Thought they had it (e.g. OR)
Just Getting Started (e.g. NC, VT, OH)
Florida Closed Claim Database













Injury Location (e.g. Hospital, Delivery Room)
Occurrence, Report, Suit, and Settlement Dates
Patient Date of Birth, Sex
Severity of Injury (e.g. Emotional, Death, Serious)
Insured County & County of Suit
Method & Stage of Settlement
Arbitration indicator
Insurer Type
Insured Specialty
(e.g. 80267- Pediatrics)
Insured Limits
Indemnity Paid (Medical, Wage & Other; future)
Loss Adjustment (Defense Costs vs. Other ALAE)
Non-Economic Loss
Occ_Year
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
80
79
78
77
76
75
74
73
72
71
Severity Trends
by Occurrence Year
Predicted Values
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Non-Economic Damages by
Occurrence Year
0.50
Predicted Values
14%
0.45
12%
0.40
10%
0.35
0.30
8%
0.25
6%
0.20
0.15
4%
0.10
2%
0.05
0%
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
0.00
Occ_Year
Predicted
Values
Claim Severity
by Injury
Type Over Time
1,000,000
SEV_DESC (DEATH)
900,000
SEV_DESC (Emotional Only Fright, no physical damage)
800,000
SEV_DESC (Permanent: Major Paraplegia, blindness, loss of two
limbs, brain damage.)
700,000
SEV_DESC (Permanent: Minor Loss of fingers, loss or damage to
organs. Includes non-disabling
injuries.)
600,000
SEV_DESC (Permanent:
Significant - Deafness, loss of
limb, loss of eye, loss of one
kidney or lung.)
500,000
SEV_DESC (Temporary: Major Burns, surgical material left, drug
side effect, brain damage.
Recovery delayed.)
400,000
SEV_DESC (Temporary: Minor Infections, misset fracture, fall in
hospital. Recovery delayed.)
300,000
SEV_DESC (Temporary: Slight Lacerations, contusions, minor
scars, rash. No delay.)
200,000
100,000
Occ_Year
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
84
19
83
19
82
0
Predicted Values
Impact of Attorney Involvement
on Claim Severity
11000
300
9000
250
7000
200
ATTORNEY (3) Exposure
ATTORNEY (2) Exposure
5000
150
ATTORNEY (1) Exposure
ATTORNEY (2)
ATTORNEY (1)
3000
100
1000
50
-1000
0
0
1
3
4
5
6
7
8
9
10
11
12
13
H IGH IN J
14
15
16
17
18
19
20
21
22
23
25
Severities by Settlement Lag
Predicted Values
60,000
50,000
40,000
30,000
20,000
10,000
0
Settlement_Lag
ALAE / Loss+ALAE by Settlement Lag
Predicted Values
0.9
50%
0.8
45%
40%
0.7
35%
0.6
30%
0.5
25%
0.4
20%
0.3
15%
0.2
10%
0.1
5%
0.0
0%
Settlement_Lag
Severities By Claim Type
Predicted Values
500,000
45%
450,000
40%
400,000
35%
350,000
30%
300,000
25%
250,000
20%
200,000
15%
150,000
10%
100,000
5%
50,000
0
0%
DE A TH
E motional Only Fright, no physical
damage
NO RE S P ONS E
P ermanent: Grave Quadraplegia,
severe brain
damage, lifelong
care or fatal
prognosis.
P ermanent: Major P araplegia,
blindness, loss of
two limbs, brain
damage.
P ermanent: Minor Loss of fingers,
loss or damage to
organs. Includes
non-disabling
injuries.
P ermanent:
S ignificant Deafness, loss of
limb, loss of eye,
loss of one kidney
or lung.
Temporary: Major B urns, surgical
material left, drug
side effect, brain
damage. Recovery
delayed.
Temporary: Minor Infections, misset
fracture, fall in
hospital. Recovery
delayed.
Temporary: S light Lacerations,
contusions, minor
scars, rash. No
delay.
45,000
Predicted
Values& Sex
Differences
by Age
55%
50%
40,000
45%
35,000
IP_Sex
(F)
40%
35%
30,000
30%
25,000
25%
20,000
20%
15%
15,000
10%
10,000
5%
5,000
0%
10
20
30
40
50
60
70
80
IP_Sex
(M)
Other Issues Reviewed






Impact of Local Courts
Differences by Specialty
Impact of Insured Limits
Impact of Standard vs. Alternative Mkts
Trends by Severity of Injury
Location of Injury
Future GLM Directions





Better databases will be built
Better matching exposures will be available
Add US Chamber of Commerce Litigation
Rank to Multi-State Analysis
Impact of Loss Prevention and System
Efficiency Measures
Look for Shifts to Economic Damages After
Non-Economic Damage Caps
Future Medical Malpractice Directions




Trial Lawyers & Insurers will still disagree
New medical technology will be developed
Diagnoses will not be perfect
The struggle to improve medical care;
at affordable costs;
with reasonable compensation; and
an efficient system
from strong, stable, responsible insurers
will continue…