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CASUALTY LOSS RESERVE SEMINAR CONCURRENT SESSION

CASUALTY LOSS RESERVE SEMINAR CONCURRENT SESSION. Unique Reserving Issues For Private Passenger Automobiles September 11, 2001 Greg Hayward - FCAS, FCIA, MAAA, CPCU State Farm Mutual Automobile Insurance Company. Be Careful.

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CASUALTY LOSS RESERVE SEMINAR CONCURRENT SESSION

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  1. CASUALTY LOSS RESERVE SEMINARCONCURRENT SESSION Unique Reserving Issues For Private Passenger Automobiles September 11, 2001 Greg Hayward - FCAS, FCIA, MAAA, CPCU State Farm Mutual Automobile Insurance Company

  2. Be Careful Ohio New York New Jersey

  3. Traditional Methods How Far Off Can You Be ? 1997 Ohio Uninsured/Underinsured 3 Year Paid Link Ratios 35.4% High 5 Year Paid Link Ratios 34.4% High 3 Year Incurred Link Ratios 10.3% High 5 Year Incurred Link Ratios 13.9% High Bornhuetter-Ferguson 17.4% High

  4. Why Didn’t Traditional MethodsWork ? Ohio UM/UIM 1993 Supreme Court Ruling in the Savoie case: • UM and UIM Coverage Stacks • UIM Excess vs. difference in limits • Each Person entitled to separate limits 1994 Martin Case – Owned but uninsured exclusion was invalidated Oct. 1994 – Legislature changed UM/UIM back to pre-Savoie case

  5. Traditional MethodsHow Far Off Can You Be? 1999 Ohio Uninsured/Underinsured 3 Year Paid Link Ratios 20.2% Low 5 Year Paid Link Ratios 21.4% Low 3 Year Incurred Link Ratios 9.1% Low 5 Year Incurred Link Ratios 14.0% Low Bornhuetter-Ferguson 4.4% Low

  6. Why Didn’t Traditional Methods Work ? 1999 Ohio UM/UIM • Linko Case – Invalidated every UM rejection form • Scott-Prontzer Case – Employees and family members under employer’s UM coverage even when outside scope of employment in non-company vehicles • Supreme Court overturned the legislature’s tort reform law

  7. Traditional MethodsHow Far Off Can You Be ? New York AIP – PIP 3 Year Link Ratios 26.0% Low 5 Year Link Ratios 24.9% Low Bornhuetter-Ferguson 52.6% Low

  8. Why Didn’t Traditional Methods Work? New York • Rapidly Changing Mix of Business -> 94-97 : 45% decline in policies with 56% increase in cost per car • FR Law Change in 1996 from 10/20/5 to 25/50/10 • Presbyterian case limiting the time to review claims without penalties • Suspected Fraud Claims Tripled

  9. Traditional MethodsHow Far Off Can You Be ? New Jersey PIP 3 Year Paid Link Ratios 34.3% Low 5 Year Paid Link Ratios 31.9% Low 3 Year Incurred Link Ratios 13.4% Low 5 Year Incurred Link Ratios 21.4% Low Bornhuetter-Ferguson 13.0% Low

  10. Why Didn’t Traditional Methods Work ? New Jersey 1990 • Half of the market was in residual market (FIUA) • MTF forced depopulation (10/90-10/92 – Lost about $2 Billion in 2 years) – AIP startup on 10/92 • Take All Comers Law, Onerous Rate Regulation, Fraud, Abuse • Rapid growth with a deteriorating mix of business • Excess Profits Law requires paid loss development 1997 • Establish Urban Enterprise Zone Assignments • Further Restricted Ability to Underwrite and Manage Business 1999 • Mandated 15% overall Rate Rollback, 27% on PIP • Reforms promised but not put into place

  11. What Should I Do? • Don’t be just mechanical – Examine each consideration in the Loss Reserve Principles and ASOP #36 • Do exploratory data analysis of multiple diagnostics to detect changes in historical patterns • Use a multi-step process to gather input from Operational Areas (Accounting, Claims, Underwriting, Legal) • Compare to the rest of the Industry • Consult with external Actuaries • Do more frequent analyses using various methods

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