Medical Professional Liability
Outlook and Economic Impacts
of the Changing Healthcare
Environment
Insurance Information Institute
August 27, 2014
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  bobh@iii.org  www.iii.org
Presentation Outline
 The US Healthcare System & the Economy
 Employment/Professional Trends in Healthcare
 Medical Professional Liability: Performance Overview & Outlook
 The Affordable Care Act: Potential Impacts on MPL
 Overall P/C Insurance Industry Performance
 Investment Overview & Outlook
 Tort Trends
 Cyber Risk and the Healthcare Industry
 Q&A
2
U.S. Health Care Expenditures,
1965–2022F
$ Billions
$5,000
$4,000
$3,000
$2,000
$1,000
$0
65 $42.0
66 $46.3
67 $51.8
68 $58.8
69 $66.2
70 $74.9
71 $83.2
72 $93.1
73 $103.4
74 $117.2
75 $133.6
76 $153.0
77 $174.0
$195.5
78
$221.7
79
$255.8
80
$296.7
81
$334.7
82
$369.0
83
$406.5
84
$444.6
85
$476.9
86
$519.1
87
$581.7
88
$647.5
89
$724.3
90
$791.5
91
$857.9
92
$921.5
93
$972.7
94
$1,027.4
95
$1,081.8
96
$1,142.6
97
$1,208.9
98
$1,286.5
99
$1,377.2
00
$1,493.3
01
$1,638.0
02
$1,775.4
03
$1,901.6
04
$2,030.5
05
$2,163.3
06
$2,298.3
07
$2,406.6
08
$2,501.2
09
$2,600.0
10
$2,700.7
11
$2,806.6
12
$2,914.7
13
$3,093.2
14
$3,273.4
15
$3,458.3
16
$3,660.4
17
$3,889.1
18
$4,142.4
19
$4,416.2
20
$4,702.0
21
$5,008.8
22
$6,000
From 1965 through 2013, US
health care expenditures had
increased by 69 fold.
Population growth over the
same period increased by a
factor of just 1.6. By 2022,
health spending will have
increased 119 fold.
U.S. health care expenditures have been on a relentless climb for
most of the past half century, far outstripping population growth,
inflation of GDP growth
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
3
National Health Care Expenditures as a
Share of GDP, 1965 – 2022F*
% of GDP
20%
18%
16%
Health care expenditures as a share
of GDP rose from 5.8% in 1965 to
18.0% in 2013 and are expected to
reach 19.9% of GDP by 2022
2022
19.9%
2010:
17.9%
14%
12%
10%
1990:
12.5%
8%
6%
2%
0%
1965
5.8%
Since 2009, heath
expenditures as a %
of GDP have
flattened out at
about 18%--the
question is why and
will it last?
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
4%
1980:
9.2%
2000:
13.8%
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
Medical Cost Inflation vs. Overall CPI,
1995 – 2014*
Though moderating, medical
inflation will continue to exceed
inflation in the overall economy
5%
4%
3%
2%
Average Annual Growth Average
1995 – 2013
Healthcare: 3.8%
Total Nonfarm: 2.4%
1%
0%
Change in Medical CPI
CPI-All Items
-1%
95
96
97
98
99
00
01 02
03
04
05
06
07 08
09
*July 2014 compared to July 2013.
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
10
11
12
13 14*
Rate of Health Care Expenditure Increase
Compared to Population, CPI and GDP
8000%
Accelerating business investment
will be a potent driver of
commercial property and liability
insurance exposures and should
drive employment and WC payroll
exposures as well (with a lag)
1965: $42.0 Bill
2013: $2,914.7 Bill
6839.8%
7000%
1965: $719.1 Bill
6000%
2013: $16,797.5 Bill
5000%
4000%
3000%
1965: 194.3 Mill
2235.9%
2013: 317.0 Mill
2000%
1000%
650.7%
63.1%
0%
Population
Source: Insurance Information Institute research.
CPI
GDP
Health Care
Expenditures
6
Employment Trends in the
Healthcare Industry
Employment Will Grow but Skills,
Responsibilities and Risks Will
Evolve
7
Growth in Health Professions,
1991-2013
(Percent Annual Change)
Average Annual Growth Average
Healthcare: 2.5%
Total Nonfarm: 1.0%
7.0
5.0
3.0
1.0
-1.0
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
1992
-5.0
1991
-3.0
1994
The U.S. economy lost more than
8 million jobs during the Great
Health care
Recession, but health sector
Total nonfarm
employment expanded
Healthcare employment has continued to grow in good times
and bad - including the Great Recession.
Sources: Bureau of Labor Statistics, Insurance Information Institute.
8
Occupations Ranked by Projected
Percentage Growth, 2012-2022F
28.1
Healthcare Support
21.5
21.4
20.9
Healthcare Practitioners
Construction
Personal Care and Service
18
17.2
Computer and Math
Social Service
12.5
12.5
11.1
10.8
10.7
10.1
9.6
9.4
8.6
7.9
7.3
7.3
7.2
7
6.8
Business & Financial
Groundskeeping/Janitorial
Education
All Occupations
Legal
Life, Phys and Social Science
Repair
Food Preparation
Transportation
Fire, Police, Etc.
Architects and Engineers
Sales
Management
Arts and Media
Administrative Support
Production
Farming
Healthcare professions are
expected to grow at 2 to
nearly 3 times employment
growth overall
0.8
-3.4
Source: Bureau of Labor Statistics, Insurance Information Institute.
9
Growth in Healthcare Profession by
Skill Level, 2012 – 2022F
(Thousands of Jobs)
+697,000
+24.1%
2,000
2,196
3,242
+425,000
+24.0%
1,771
3,000
2,492
2,893
4,000
+750,000
+30.1%
3,590
5,000
+1.015 Mill
+20.3%
5,005
6,000
6,020
7,000
1,000
0
Practitioners, including
RNs
Technicians, including
LPNs
2012
Source: Bureau of Labor Statistics, Insurance Information Institute.
Aides
Other
2022
10
Projected Physician Supply and
Demand, 2008–2020
851,300
A potential large and growing
shortage of physicians
looms. Estimates suggest a
shortage of 91,500 physicians
by 2020—a gap 12% gap.
759,800
Will this be a negative for
MPL?
Source: American Association of Medical Colleges https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/; Insurance Information
Institute.
12
Physician Supply and Demand,
2008–2020
A potential large and growing physician gap looms over the
next decade, with potential negative impacts on MPL
Source: American Association of Medical Colleges https://www.aamc.org/advocacy/campaigns_and_coalitions/fixdocshortage/; Insurance Information
Institute.
13
12 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Many
industries are
poised for
growth,
though
insurers’
ability to
capitalize on
these
industries
varies widely
Light Manufacturing
Insourced Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine, Trucking, Pipelines)
14
Medical Professional Liability
Performance Overview
15
Medical Professional Liability:
4 Major Challenges
 Increasing Competition
 Price (rate) competition is intensifying
 Physicians: More employed by hospitals, large inst. hurts exposure
 Self-insurance by hospitals adds to downward pressure
 Falling Investment Income
 Despite Fed “tapering,” rates remain low
 More complete “normalization” will not occur until 2015, if then
 Rising Number of Self-Insured Exposures
 Hospitals increasingly self-insure
 More use of captives
 Legal & Legislative Reform
 Tort reform law changes (caps)
 Affordable Care Act (“ObamaCare”)
 Impacts on practice of defensive medicine
 Other: Reserves, Loss Frequency & Severity Trends
16
15%
14%
20%
New study
reviewed 4
studies
authored
since 2008
15%
25%
Sept. 2013 study in the Journal of
Patient Health suggests that 210,000
– 400,000+ die each year from
preventable medical errors (implies
3rd leading cause of death in US)
15%
Error Rate
21%
Medical Errors: Rate of Lethal and
Serious Adverse Events
0.6%
1.1%
1.1%
5%
1.4%
10%
0%
OIG (2008)
Lethal Events
OIG (2010)
Classen, et al (2011)
Landrigan, et al (2011)
Serious Adverse Events
Source: “A New, Evidence-Based Estimate of Patient Harms Associated with Hospital Care, Journal of Patient Safety, Volume 9,
Issue 3 (Sept. 2013) by John T. James, Ph.D. accessed at:
http://journals.lww.com/journalpatientsafety/Fulltext/2013/09000/A_New,_Evidence_based_Estimate_of_Patient_Harms.2.aspx
17
Distribution of MPL Premium by Segment,
2001 vs. 2012
2001
RRG
RRG and Specialist
market shares have
risen over the past
10+ years
2012
RRG
1%
8%
Multiline
Multiline
33%
22%
Specialist
66%
Source: Conning.
Specialist
70%
18
MPL Statutory Net Income After Tax,
2006 – 2016F
($ Millions)
$3,500
+29.4%
+34.0%
$2,896
$2,884
$3,000
-20.1%
$2,500
$2,303
$2,228
Rates and yields will
need to improve to
reverse the drop in
profits
-12.9%
$2,521
-6.2%
+11.4%
-11.4% $2,480 -12.0%
$2,226
$2,161
$2,182
-12.7%
$1,904
$2,000
-9.8%
$1,718
$1,500
$1,000
$500
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014F 2015F 2016F
MPL profits peaked in 2010. Falling rates and exposures and lower
investment earnings are impacting the bottom line.
Source: Conning.
19
Medical Malpractice Combined Ratio vs.
All Lines Combined Ratio, 1991-2016F
MPL insurers in 2013 paid out an
estimated $0.894 in loss and expense
for every $1 they earned in premiums
136.0
91.5
89.4
93.3
87.2
101.0
80.0
80
83.5
In 2001, med mal
insurers paid out $1.55
for every dollar earned
76.7
83.3
90
97.0
110.9
115.7
107.9
91
100
The dramatic improvement over
the past decade has restored
MPL’s viability, though some
deterioration has occurred and is
expected to continue
100.9
96.4
103.7
110
108.0
120
99.8
130
106.6
127.9
140
130.4
150
137.3
160
142.3
154.7
170
Source: AM Best (1991-2012); Conning (2013-16F) Insurance Information Institute.
16F
15F
14F
13
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
70
20
RNW: MPL vs. All P/C Lines, 2003-2012
Since 2005, MPL has
outperformed the p/c
insurance industry overall
by a wide margin
(Percent)
18%
16%
14%
12%
10%
8%
6%
4%
Average 2003-2012
2%
All P/C Lines: 7.9%
0%
MPL: 12.3%
-2%
03
04
05
US All Lines
Sources: NAIC.
06
07
08
09
10
11
12
MPL
21
MPL Combined Ratio and ROE,
2006 - 2016F
ROEs are under pressure as
underwriting results deteriorate
and persistently low interest
rates impact investment income
Combined Ratio / GAAP ROE
18.0%
110
15.6%
13.7%
105
100
95
101.0
11.3%
13.5%
90
87.2
89.4
9.2%
83.5
83.3
85
97.0
93.3
11.9%
91.0
15%
12%
91.5
9%
6.4%
9.5%
7.7%
80.0
80
18%
5.5%
76.7
6%
3%
75
0%
70
06
07
08
09
10
Combined Ratio
11
12
13
14F
15F
16F
GAAP ROE
As underwriting results deteriorate, ROEs are have begun to decline
Source: Conning; Insurance Information Institute.
MPL Capital & Surplus,
2006 – 2016F
($ Millions)
Capital is increasing
even as premium
growth has been
negative
$35,000
$30,000
+4.1% +3.3%
+5.2%
$31,189
+10.8% $29,029 $30,205
+8.1% $27,599
+18.5% +0.2% $24,908
$25,000
+17.7% $23,013 $23,052
+22.1% -4.6% $19,421
$20,000
$15,000
$17,290 $16,502
$14,162
$10,000
$5,000
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014F 2015F 2016F
Capital and surplus growth in the MPL shows steady growth mirroring
the overall P/C insurance industry
Source: Conning.
23
Change in MPL vs. All Lines P/C Capital &
Surplus, 2006-2013E
% Change
25%
Since 2006, MPL capital
and surplus has grown at
twice the pace of the p/c
insurance industry overall
All P/C Lines: 5.2%
MPL: 10.6%
22.1%
20%
15%
Average 2006-2013E
18.5%
17.7%
15.1%
14.2%
11.8%
9.3%
10%
8.0%
6.6%
6.5%
7.8%
6.4%
5%
0.2%
0%
-1.6%
-5%
-4.6%
-10%
-11.7%
-15%
06
07
08
09
MPL
10
11
12
13E
All P/C Lines
Source: Insurance Information Institute from A.M. Best and Conning data.
24
P/C Estimated Loss Reserve Deficiency/
(Redundancy), Excl. Statutory Discount
Line of Business
2012
Personal Auto Liability
Homeowners
Other Liab (incl. Prod Liab)
Workers Compensation
Commercial Multi Peril
Commercial Auto Liability
Medical Malpractice
Reinsurance—Nonprop Assumed
All Other Lines*
Total Core Reserves
Asbestos & Environmental
Total P/C Industry
-$3.9B
-$0.4
$7.5
$11.1
$1.9
$0.7
-$3.5
$1.0
-$4.6
$9.8
$11.2
$21.0B
Source: A.M. Best, P/C Review/Preview 2014; Insurance Information Institute. *Excluding mortgage and financial guaranty
25
MPL Direct Premiums Written: 2004-2016F
$ Millions
MPL DPW is expected
to drop to $9.36B in
2014, down 21.2% from
its 2006 peak of $11.9B
$13
$11.88
$12
$11
$10.76 $10.67
$11.14
$10.99
$10.82
$10.36
$10.11
$10
$9.77 $9.80 $9.63
$9.36 $9.18
$9
$9.00
$8
$7
$6
$5
03
04
05
06
07
08
09
10
11
12
13
14F
15F
16F
MPL direct premiums written have been declining
steadily since 2006
Source: A.M. Best (2003-2012); Conning (2013-2016F); Insurance Information Institute.
26
Annual Change in Medical Professional
Liability DPW, 2004-2016F
% Change
10%
Competition and an
increasing number of
self-insured exposures
are weighing on MPL
premium growth
8.1%
8%
6%
3.0%
4%
2%
0.3%
0%
-2%
-0.8%
-4%
-2.4%
-2.9%
-4.3%
-6%
-1.7%
-3.4%
-2.8%
-1.9% -2.0%
-6.2%
-8%
04
Source: Conning.
05
06
07
08
09
10
11
12
13
14F
15F
16F
27
Annual Change in Medical Professional
Liability Incurred Losses, 2004-2016F
Incurred losses have been
generally increasing since 2011
after years of sharp declines
% Change
12.4%
15%
10%
5.9%
3.5%
5%
1.1%
4.6% 3.4%
0%
-5%
-10%
-7.1%
-15%
-10.2%
-10.4%
-11.8%
-15.6%
-20%
06
Source: Conning.
07
08
09
10
11
12
13
14F
15F
16F
28
Medical Professional Liability: Change in
Premium and Incurred Losses, 2006-2016F
% Change
15%
10% 8.1%
Mid-2000s:
Favorable loss
trends precipitated
lower prices and
falling premium
12.4%
5.9%
4.6%
3.5%
5%
3.4%
1.1%
0.3%
0%
-2.9%
-5%
-10%
-2.4%
-4.3%
-1.7%
-3.4%
-2.8%
-7.1%-6.2%
-11.8%
-15%
-10.2%
-10.4%
-15.6%
-20%
06
07
08
09
10
MPL DPW Growth
11
12
13
-1.9%
-2.0%
Today: Premium
seems to be
lagging the
increase in
losses
14F
15F
16F
Change in Incurred Losses
Source: Insurance Information Institute from A.M. Best and Conning data.
29
0
25
5
20.6
20.1
19.4
19.0
19.0
18.7
18.0
17.6
17.3
17.3
17.2
17.1
16.6
16.3
16.0
16.0
15.9
15.4
15.4
15.0
14.6
MI
KS
NC
AK
WV
NV
MS
CA
LA
NE
VA
ID
WA
CO
IA
WI
MO
MN
OR
GA
ME
21.9
10
TX
15
22.5
20
ND
24.9
30
AL
35.4
40
OH
Medical Professional Liability, RNW
By State, Average 2003-2012
Top 25 States and DC
35
Source: NAIC; Insurance Information Institute.
30
13.4
13.0
12.6
12.5
12.3
12.2
12.1
DC
AZ
FL
CT
SD
KY
US
11.2
11.0
10.6
NJ
VT
AR
OK
-1.7
3.4
SC
DE
3.5
NY
NM
MD
RI
IL
PA
5.3
5.9
9.3
9.1
10.0
11.2
MT
NH
11.3
MA
10.1
11.3
IN
WY
11.6
HI
-0.4
13.7
UT
7.1
13.8
16
14
12
10
8
6
4
2
0
-2
-4
TN
Medical Professional Liability RNW
By State, Average 2003-2012
Bottom 25 States
Source: NAIC; Insurance Information Institute
31
0
17.8
17.6
17.6
MI
ID
NE
15.0
17.9
MO
DC
18.6
TX
15.2
18.7
CT
NC
19.0
SD
15.3
19.4
HI
CO
19.9
VT
15.4
19.9
UT
IL
20.3
MS
15.7
21.2
MN
AK
21.6
KS
23.2
WV
25.4
AL
23.8
26.6
ND
MT
27.7
10
OK
20
28.2
30
WI
31.8
40
NV
53.1
60
OH
Medical Professional Liability, RNW
By State, 2012
Top 25 States and DC
50
Source: NAIC; Insurance Information Institute.
32
11.3
11.0
10.8
10.7
10.4
10.3
10.0
US
MA
NJ
FL
IN
CA
IA
7.6
SC
-2.0
-3.6
-9.8
RI
MD
NH
DE
-0.9
NM
TN
NY
WY
5.6
6.2
8.8
OR
AR
8.8
KY
-51.4
11.3
ME
0.5
11.6
AZ
7.1
12.2
-60
VA
-50
12.7
-40
PA
-30
13.0
-20
WA
-10
14.3
0
GA
10
14.5
20
LA
Medical Professional Liability RNW
By State, 2012
Bottom 25 States
Source: NAIC; Insurance Information Institute
33
-0.1
11.3
11.1
11.1
WA
CT
WV
6.5
TN
0.3
0.2
-0.1
GA
DE
US
2.0
AZ
3.3
VA
2.4
3.5
NJ
NM
3.6
4.5
CO
ID
5.5
6.6
WI
KS
6.6
ME
5.7
6.7
UT
NE
7.3
8.1
LA
NC
8.8
NV
9.7
12.0
4.9
CA
9.9
MA
15.5
12.9
14.9
MI
HI
19.2
19.9
ND
22.8
24.9
MN
32.4
34.9
AL
Medical Professional Liability, RNW
By State, 2003
Top 27 States and US
29.9
Source: NAIC; Insurance Information Institute.
34
Medical Professional Liability RNW
By State, 2003
-13.7
-11.8
-9.0
-7.8
IA PA MO MT MS SC OH WY OK
-7.8
-6.0
-5.6
-5.3
-5.3
-4.5
-4.5
-4.4
-3.2
IL AR
-7.2
-15
-3.1
-2.9
-2.6
-1.8
-5
-1.4
OR IN NH NY KY TX RI AK DC MD VT SD FL
-6.3
Bottom 24 States and DC
-30.2
-35
-29.5
-25
-55
-51.9
-45
-65
-75
Source: NAIC; Insurance Information Institute
OK -202.5
35
The Affordable Care Act and
Medical Professional Liability
A Summary of Potential Impacts
52
Potential Impacts of the ACA on
Medical Professional Liability
Issue
Concern
•
•
Insurance
(VOLUME EFFECT)
•
•
the population
•
Patient care
adversely impacted
•
improving the general health of
Doctors spend less
time on patients
Digitization could
Over time, people will have
access to preventative care,
overwhelmed
Surge in People
Covered by Health
System is
Contravening Argument
People are receiving care
already via suboptimal channels
•
Less use of ERs
•
Computerization of patient data
Electronic Health
create a treasure
could help flag issues and
Records
trove of data for
improve risk management and
plaintiff attorneys
improve patient outcomes
MPL Claim Severity
Source: Insurance Information Institute research.
•
More large verdicts
•
ACA will help contain system
costs
53
Projected Number of People with No
Health Insurance, 2013—2022*
Millions
By 2018 the number of
people under age 65 without
insurance is expected to
drop by 25 million (~45%)
65
55
55
44
45
37
35
30
31
2018F
2022F
25
15
5
2013E
2014F
2015F
The projected decline in the uninsured population is very
sensitive to the enrollment rate under the Affordable Care Act
*Under age 65.
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
54
Number of People Signed Up for Health
Care Under the ACA, Oct. 1 – March 1
As of March 1, 4.2 million
people have signed up for
coverage under the ACA
since enrollment opened on
Oct. 1, 2013
UPDATE
HHS
announced
that
enrollment as
of 3/16 now
exceeds 5
million
759,800
Source: Centers for Medicare and Medicaid as of March 7, 2014:
http://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Mar2014/ib_2014mar_enrollment.pdf
55
Estimated Number of Americans Newly Eligible for
Expanded Preventative Services Under the ACA
As of June 2014 1, 76 million
people (est.) are newly eligible for
expanded benefits under the ACA
Source: Centers for Medicare and Medicaid as of June 27, 2014:
http://www.aspe.hhs.gov/health/reports/2014/PreventiveServices/ib_PreventiveServices.pdf
Much of the
increase in
MPL costs
associated
with the ACA
results from a
greater
volume of
care being
rendered via
new enrollees
and benefit
expansions.
56
Expected Increase in Rates of Insurance Coverage,
by State, Due to the Patient Protection and
Affordable Care Act (%) as of 2016
Top 25 States and US
States in the
West will see the
sharpest
increase in the
share of the
population that
is insured
Source: “How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs?” RAND, April 2014;
http://www.rand.org/pubs/research_reports/RR493.html; Insurance Information Institute.
57
Med Malpractice: Estimated Changes in Liability
Claim Costs, by State and Market, Due to the Patient
Protection and Affordable Care Act (%) in 2016
Top 25 States and US
9
2.7
2.7
2.6
2.6
2.6
2.5
CA
FL
IA
ID
MI
AZ
3.3
ND
2.8
3.5
NC
US
3.6
NJ
2.8
3.6
MS
OK
3.7
WY
3
3.8
SC
RI
4
LA
3
4.1
WV
NV
4.1
GA
4
3.1
4.2
4.5
KY
WA
4.6
AR
5
5
6
TX
5.6
7
VA
RAND estimates that the
ACA will increase MPL claim
costs by 2.8% by 2016,
mostly due to increased
patient volume
7.8
8
Total MPL
liability
payouts in
2016 are
projected to
be $4.8
billion
3
2
MT
0
NM
1
Source: “How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs?” RAND, April 2014;
http://www.rand.org/pubs/research_reports/RR493.html; Insurance Information Institute.
58
Med Malpractice: Estimated Changes in Liability
Claim Costs, by State and Market, Due to the Patient
Protection and Affordable Care Act (%) in 2016
Bottom 25 States and DC
MD
KS
UT
DE
HI
NH
NE
CT
TN
0
MA
0.5
WI
0.4
0.8
1
0.7
1
1.1
1.3
ME
1.2
1.3
DC
1.5
1.5
1.7
VT
1.6
1.7
1.8
OH
NY
1.8
1.9
SD
IL
1.9
PA
1.8
2
AL
CO
2
2
AK
2.4
OR
2.1
2.4
MO
2.2
2.4
MN
2.3
2.4
2.5
IN
3
Source: “How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs?” RAND, April 2014;
http://www.rand.org/pubs/research_reports/RR493.html; Insurance Information Institute.
59
P/C Insurance Industry
Financial Overview
2013: Best Year in the
Post-Crisis Era
60
$63,784
$13,654
$33,522
$19,456
$28,672
$3,043
$35,204
$62,496
Net income rose
strongly (+81.9%)
in 2013 vs. 2012
on lower cats,
capital gains
$44,155
$38,501
$30,029
$20,559
$21,865
$30,773
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$36,819
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.3%
2014 ROAS1 = 8.4%
$24,404

$ Millions 
$80,000 

$70,000 

$60,000 

$50,000 

$65,777
P/C Industry Net Income After Taxes
1991–2014:Q1
2014 is off to a
slower start
$0
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields an 8.2% ROAS through
2014:Q1, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO; Insurance Information Institute
14:Q1
13
12
11
10
09
08
07
06
05
04
03
02
01
99
98
97
96
95
94
93
92
91
00
-$6,970
-$10,000
Net Premium Growth: Annual Change,
1971—2014F
(Percent)
1975-78
1984-87
25%
2000-03
Net Written Premiums Fell
0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008,
and 4.2% in 2009, the First 3Year Decline Since 1930-33.
20%
2014F: 4.0%
15%
2013: 4.6%
2012: +4.3%
10%
5%
0%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
62
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2014:Q1*
ROE
25%
1977:19.0%
History suggests next ROE
peak will be in 2016-2017
1987:17.3%
20%
2006:12.7%
1997:11.6%
15%
9 Years
2013
10.4%
10%
5%
2014:Q1
8.2%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
-5%
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
ROE: Property/Casualty Insurance by
Major Event, 1987–2014:Q1
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
Low
CATs
15%
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
4 Hurricanes
Northridge
Financial
Crisis*
Sandy
Record
Tornado
Losses
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through Q1:2014.
Sources: ISO, Fortune; Insurance Information Institute.
64
P/C Insurance Industry
Combined Ratio, 2001–2014:Q1*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
120
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
Avg. CAT
Losses,
More
Reserve
Releases
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
101.0
100.8
100.1
Cyclical
Deterioration
99.3
98.4
100
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
Impacts
106.3
102.4
100.8
Lower
CAT
Losses
96.7
95.7
97.4
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1; 2014:Q1 = 97.3.
Sources: A.M. Best, ISO.
65
A 100 Combined Ratio Isn’t What It
Once Was: Investment Impact on ROEs
Combined Ratio / ROE
15.9%
110
A combined ratio of about 100 generates an
ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
106.5
14.3%
12.7%
105
100.6 100.1 100.8
100
10.9%
101.2
99.5
15%
102.4
101.0
12%
97.5
96.7
95.7
95
8.8%
7.4% 7.9%
9.6% 92.7
6.2%
4.7%
90
97.4
9%
9.8%
8.2%
Lower CATs
helped ROEs
in 2013
4.3%
85
18%
6%
3%
0%
80
1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013 2014:Q1
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014:Q1 combined ratio
including M&FG insurers is 97.3; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
P/C Reserve Development, 1992–2015E
Prior Yr. Reserve Release ($B)
$25
$20
24
6
Impact on
Combined Ratio
(Points)
$15
$10
$5
8
Prior Yr. Reserve
Development ($B)
14
11
11
4
9
2
2
0
$0
(2)
-$5
-$10
(0)
(3)
(4)
(7)
(8)
(7) (7)
(9)
(10)(10)
-$15
-2
(5)
(13)
(12)
(10)
(14)
(12)
(10)
-4
15E
14E
13E
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
-6
92
-$20
Impact on Combined Ratio (Points)
$30
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this
transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes
development from financial guaranty and mortgage insurance.
Sources: A.M. Best, ISO, Barclays Research (estimates).
67
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
$624.4
14:Q1
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
Surplus as of 3/31/14 stood at
a record high $662.0B
09:Q3
$437.1
$463.0
09:Q2
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$455.6
$478.5
$505.0
$515.6
$517.9
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2
$566.5
$650
$614.0
2007:Q3
Pre-Crisis Peak
$700
$607.7
Drop due to near-record
2011 CAT losses
$662.0
($ Billions)
$653.3
Policyholder Surplus,
2006:Q4–2014:Q1
The industry now has $1 of surplus for every $0.73 of NPW,
close to the strongest claims-paying status in its history.
2010:Q1 data includes $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2014
in very strong financial condition.
68
Financial Strength &
Underwriting
History Suggests that MPL, Like
Other Long-Tailed Lines Is Much
More Difficult to Underwrite
69
P/C Insurer Impairments, 1969–2012
Impairments among P/C
insurers remain infrequent
0
16
19
21
14
15
21
34
35
18
19
12
16
18
31
29
9
13
12
9
9
11
5
7
8
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
10
15
12
20
16
14
13
19
30
31
34
34
40
36
41
50
49
50
47
49
50
48
55
60
60
58
70
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013;
Insurance Information Institute.
70
P/C Insurer Impairment Frequency vs.
Combined Ratio, 1969-2012
120
Combined Ratio after Div
P/C Impairment Frequency
2.0
1.8
1.6
1.4
110
1.2
1.0
105
0.8
100
0.6
Impairment Rate
Combined Ratio
115
0.4
95
2012 impairment rate was 0.69%, down from 1.11% in 2011; the
rate is lower than the 0.82% average since 1969
0.0
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
90
0.2
Impairment Rates Are Highly Correlated With Underwriting Performance
and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not
Representative of the Industry Overall
Source: A.M. Best; Insurance Information Institute
71
Reasons for US P/C Insurer
Impairments, 1969–2012
Historically, Deficient Loss Reserves and Inadequate Pricing Are
By Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
Misc.
Investment Problems
3.1%
3.5%
8.4%
6.6%
Deficient Loss Reserves/
Inadequate Pricing
(Overstatement of Assets)
43.4%
8.0%
Affiliate Impairment
7.1%
Catastrophe Losses
7.2%
Alleged Fraud
12.6%
Rapid Growth
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
72
Top 10 Lines of Business for US P/C
Impaired Insurers, 2000–2012
Medical Professional Liability Accounts for Only About 2% of Industry DPW
but 6.7% of Insurer Impairments
Other
Title
Surety
8.6%
4.0%
19.7%
Workers Comp
4.8%
Med Mal
6.7%
22.2%
Other Liability
8.6%
Pvt. Passenger Auto
7.3%
Commercial Auto Liability
8.8%
Commercial Multiperil
9.2%
Homeowners
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
.
73
INVESTMENTS:
THE NEW REALITY
The Challenge of Low Investment
Yields Is a Critical Issue for MPL
Insurers
Is Relief in Sight?
74
Property/Casualty Insurance Industry
Investment Income: 2000–20141
Investment earnings
are still below their
2007 pre-crisis peak
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1 $47.6
$38.9
$38.7
$48.0 $47.4
$45.8
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Due to persistently low interest rates,
investment income fell in 2012 and in 2013
and is falling again in 2014.
1
Investment gains consist primarily of interest and stock dividends.
Sources: ISO; Insurance Information Institute.
*2014 investment income is estimated Q1, annualized.
14*
$3.00
$11.43
$6.18
-$7.90
-$19.81
-$5
-$10
-$15
-$20
-$25
$7.04
$5.85
$8.92
$3.52
$9.70
$9.13
-$1.21
$6.63
$6.61
Realized capital gains rose
sharply as equity markets rallied
$16.21
$13.02
$10.81
$9.24
$6.00
$1.66
$9.82
$9.89
$4.81
$20
$15
$10
$5
$0
$2.88
($ Billions)
$18.02
P/C Insurer Net Realized
Capital Gains/Losses, 1990-2014:Q1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1314:Q1
Insurers Posted Net Realized Capital Gains in 2010 - 2013 Following Two
Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE
Sources: A.M. Best, ISO, Insurance Information Institute.
76
Property/Casualty Insurance Industry
Investment Gain: 1994–2014:Q11
($ Billions)
$70
$60
$50
$64.0
$58.0
$56.9
$52.3
$51.9
$47.2
$44.4
$42.8
$40 $35.4
$59.4
$55.7
$58.8
$56.2
$54.2
$53.4
$48.9
$45.3
$39.2
$36.0
$31.7
$30
$20
$10
Investment gains in 2013
were their highest in the
post-crisis era
$14.1
$0
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14:Q1
Investment Income Continued to Fall in 2013 Due to Low Interest Rates
but Realized Investment Gains Were Up Sharply; The Financial Crisis
Caused Investment Gains to Fall by 50% in 2008
1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.
* 2005 figure includes special one-time dividend of $3.2B;
Sources: ISO; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset
1% Decline in Investment Yield to Maintain
Constant ROE, by Line*
s
ne
i
L
-5.7%
-5.2%
-4.3%
-3.7%
-3.3%
-3.3%
-3.1%
-2.1%
-1.9%
-3.6%
-2.0%
-1.8%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-1.8%
ty
s
l
e
e
o
p
t
r
a
s
n
i
a
ro
p
l
Li
y
rc
Su
Au
s
o
t
P
C
a
/
al
r
e
l
s
s
n
y
n
t
a
t
P
u
M
m
m
m
m
li
P
di
so
s
pl
rra
d
e
m
m
m
m
r
r
r
t
e
C
a
e
d
o
o
r
o
o
Pe
Pv
Pe
C
C
C
C
C
Fi
W
Su
M
W
to
u
A
R
a
ur
s
n
ei
**
e
nc
-7.3%
Lower Investment Earnings Place a Greater Burden on
Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
78
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2014*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
6%
U.S. Treasury
yields plunged to
historic lows in
2013. Longerterm yields have
rebounded a bit.
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations,
most P/C insurer portfolios will have low-yielding bonds for years to come.
*Monthly, constant maturity, nominal rates, through July 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
80
Reduction in Combined Ratio Necessary to Offset
1% Decline in Investment Yield to Maintain
Constant ROE, by Line*
s
ne
i
L
-5.7%
-5.2%
-4.3%
-3.7%
-3.3%
-3.3%
-3.1%
-2.1%
-1.9%
-3.6%
-2.0%
-1.8%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-1.8%
s
ty
l
e
e
o
p
t
r
a
s
n
i
a
ro
p
l
Li
y
rc
Su
Au
s
o
t
P
C
a
/
al
r
e
l
s
s
n
y
n
t
a
t
P
u
M
m
m
m
m
li
P
di
so
s
pl
rra
d
e
m
m
m
m
r
r
r
t
e
C
a
e
d
o
o
r
o
o
Pe
Pv
Pe
C
C
C
C
C
Fi
W
Su
M
W
to
u
A
R
a
ur
s
n
ei
**
e
nc
-7.3%
Lower Investment Earnings Place a Greater Burden on
Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
84
Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2013
2013
16.5%
2012
16.6%
2011
14.9%
41.2%
27.3%
10.4% 6.2%
2010
16.0%
39.5%
27.1%
11.2% 6.2%
2009
15.6%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
2005
38.8%
29.3%
9.8% 5.7%
27.6%
9.8% 5.7%
40.4%
36.4%
29.0%
12.7%
8.1%
33.8%
12.9%
8.1%
29.5%
34.1%
13.1%
7.4%
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
32.4%
31.2%
11.9% 7.1%
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
32.5%
31.3%
15.4%
15.4%
7.6%
9.2%
20% these years
40%has been 60%
80% longer maturities
100%
The0%
main shift over
from bonds with
to bonds
with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category
(from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s
bond portfolio is contributing to a drop in investment income along with lower yields.
Sources: SNL Financial; Insurance Information Institute.
85
Shifting Legal Liability &
Tort Environment
Is the Tort Pendulum
Swinging Against Insurers?
87
Over the Last Three Decades, Total Tort Costs as a
% of GDP Appear Somewhat Cyclical, 1980-2013E
($ Billions)
$300
2.25%
Deepwater
Horizon Spike
in 2010
$200
2.00%
$150
$100
1.75%
Tort costs in dollar terms have
remained high but relatively stable
since the mid-2000s., but are down
substantially as a share of GDP
$50
Tort Costs as % of GDP
2.21% of
GDP in 2003
= pre-tort
reform peak
$250
Tort System Costs
2.50%
Tort Costs as % of GDP
Tort Sytem Costs
1.68% of
GDP in
2013
1.50%
$0
80
82
84
86
88
90
92
94
96
98
00
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
02
04
06
08
10
12E
88
Commercial Lines Tort Costs: Insured
vs. Self-(Un)Insured Shares, 1973-2010
2005: $143.5B
66.4% insured,
33.6% self(un)insured
Billions of Dollars
$160
$140
$120
$100
$80
$60
$40
$20
Self (Un) Insured Share
$15.0
Insurer Share
1973:
1985: $46.6B
Commercial
74.5% insured,
Tort Costs
25.5% selfTotaled
$9.5(un)insured $6.0
$6.49B, 94%
was insured,
6% self(un)insured
1995: $83.6B
69.5% insured,
30.5% self(un)insured
2009: $126.5B
64.4% insured,
35.6% self(un)insured
$0
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Tort Costs and the Share Retained by Risks Both Grew Rapidly from
the mid-1970s to mid-2000s, When Tort Costs Began to Fall But SelfInsurance Shares Continued to Rise
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4.
89
Commercial Lines Tort Costs: Insured
vs. Self-(Un)Insured Shares, 1973-2010
Percent
2010: $138.1B 56.6% insured,
44.4% self-(un)insured
(distorted by Deepwater
Horizon event with most
losses retained by BP)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
1973: 94%
was insured,
6% self(un)insured
1985:74.5%
insured,
25.5% self(un)insured
1995: 69.5%
insured,
30.5% self(un)insured
2005: 66.4%
insured,
33.6% self(un)insured
Self (Un) Insured Share
Insurer Share
0%
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
The Share of Tort Costs Retained by Risks Has Been Steadily
Increasing for Nearly 40 Years. This Trend Contributes Has Left
Insurers With Less Control Over Pricing.
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4.
90
Business Leaders Ranking of Liability
Systems in 2012

Worst States
41.
Florida
42.
Oklahoma
43.
Alabama
44.
New Mexico
45.
Montana
46.
Illinois
47.
California
North Dakota
48.
Mississippi
Utah
49.
Louisiana
50.
West Virginia

Best States
1.
Delaware
2.
Nebraska
3.
Wyoming
4.
Minnesota
5.
Kansas
6.
Idaho
7.
Virginia
8.
9.
10. Iowa
New in 2012




Wyoming
Minnesota
Kansas
Idaho
Drop-offs




Indiana
Colorado
Massachusetts
South Dakota
Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.
Newly Notorious
 Oklahoma
Rising Above
 Arkansas
91
The Nation’s Judicial Hellholes:
2012/2013
Illinois
Watch List
 Philadelphia,
Pennsylvania
 South Florida
 Cook County, Illinois
 New Jersey
 Nevada
 Louisiana
Madison County
West Virginia
Maryland
Baltimore
California
Dishonorable
Mention
 MO Supreme Court
 WA Supreme Court
Source: American Tort Reform Association; Insurance Information Institute
New York
Albany and
NYC
92
CYBER RISK
Cyber Risk is a Rapidly Emerging
Exposure for All Industries—
Especially Healthcare/Medical
NEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2014.pdf
93
Data Breaches 2005-2013, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
700
656
222.5
Millions
662
619
220
200
600
180
498
500
160
446
127.7
419
447
400
300
140
87.9
66.9
321
157
100
80
35.7
200
120
60
16.2
19.1
22.9
40
17.3
20
100
0
2005
2006
2007
2008
# Data Breaches
2009
2010
2011
2012
2013*
# Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records
Exposed (+408%) in 2013 Soared
* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.
Source: Identity Theft Resource Center.
2013 Data Breaches By Business
Category, By Number of Breaches
The majority of the 614 data breaches in 2013 affected business and
medical/healthcare organizations, according to the Identity Theft Resource Center.
Banking/Credit/Financial,
23 (3.7%)
Govt/Military, 56 (9.1%)
Business, 211 (34.4%)
3.7%
9.1%
Educational, 55 (9.0%)
9.0%
34.4%
Medical/Healthcare, 269 (43.8%)
43.8%
Medical/Health
organizations
accounted for
nearly 43.8% of all
cyber breaches in
2013, up from
34.5% in 2012
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/images/breach/2013/UpdatedITRCBreachStatsReport.pdf
95
External Cyber Crime Costs: Fiscal Year
2013
Information loss (43%) and business disruption or lost productivity (36%) account for
the majority of external costs due to cyber crime.
Equipment damages
Information loss
4%
Revenue loss
17%
43%
Business disruption
Information loss is
the major concern,
business
interruption could
cause serious
issues for health
institutions as well
36%
Other costs* 0%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category
Source: 2013 Cost of Cyber Crime: United States, Ponemon Institute.
97
Main Causes of Data Breach
Negligent employees and malicious attacks are most often the cause of the
data breach. Some 39 percent of incidents involve a negligent employee or
contractor, while 37 percent concern a malicious or criminal attack.
Negligence
System glitch
24%
39%
Malicious or criminal
attack
37%
Source: 2011 Cost of Data Breach Study: United States, Ponemon Institute, March 2012
98
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_hartwig
Download at www.iii.org/presentations
102