1 / 70

Reserving for Non-Medical Malpractice

Reserving for Non-Medical Malpractice. Casualty Loss Reserve Seminar September 8-9, 2003 Chicago, Illinois Jane C. Taylor, FCAS, JD. Non-Medical Malpractice?. Any Non-Medical Service Provider. Financial Managers / Business Advisors Directors and Officers Stock Brokers / Investment Houses

joshwa
Download Presentation

Reserving for Non-Medical Malpractice

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Reserving forNon-Medical Malpractice Casualty Loss Reserve Seminar September 8-9, 2003 Chicago, Illinois Jane C. Taylor, FCAS, JD

  2. Non-Medical Malpractice? Any Non-Medical Service Provider • Financial Managers / Business Advisors • Directors and Officers • Stock Brokers / Investment Houses • Lawyers • Accountants • Actuaries/Benefit Consultants • Insurance Agents/Brokers

  3. Non-Medical Malpractice? Any Non-Medical Service Provider • Real Property • Contractors - NOT Malpractice • Lawyers / Title Companies • Accountants • Architects and Engineers • Real Estate Agents • Appraisers / Inspectors • Lenders ?

  4. Non-Medical Malpractice? Any Non-Medical Service Provider • Miscellaneous /Other • School Boards • Travel Agents • Theatrical Agents / Media Professionals • Professional Trainers • Consultants

  5. External Influences:Financial / Investing • Economy • Overall downturn - began in 2000 • Downturn reinforced by events of 9/11 • Insurers absorbed major losses • Reinsurance tightened • The 2003 Black Out - August 14-16 • Increased oil prices • Major baby boom?

  6. External Influences:Financial / Investing Stock Market - recovering?

  7. External Influences:Financial / Investing Unemployment • Up … and Down… and Up …and • Jobs going overseas • Hiring postponed • Varies widely by state / area • Low South Dakota: 3.10% • High: Alaska:7.70%, Oregon: 7.50%, Washington:7.30% • Surprise 93,000 jobs cut week ending 09/05/03

  8. External Influences:Financial / Investing Unemployment

  9. External Influences:Financial / Investing • Consumer Credit • High delinquency ratio ( > 30 days) • Very high debt to asset ratio • “No payment until 2004” • “Zero interest until 2006”

  10. Consumer Economy

  11. Effects on Insurance • Restaurants • 9 - 18 months after downturn • Fire • Vandalism • Other Damage -Beer Flood • Mortgage Guaranty • 18 - 36 months after downturn • Mortgage paid for as long as possible

  12. Effects on Non Medical Malpractice Boom - Bust Cycles • Boom Times - Somebody messes up • Loses money • Making too much money to care • Opportunities too great • Remedies • None, do not care • Money to fix from future profits

  13. Effects on Non Medical Malpractice Boom - Bust Cycles • Bust Times - Somebody messes up • Losing money • Larger percent of remaining funds • Matters more • Remedies • Who put me in this position?

  14. Effects on Non Medical Malpractice Who put me in this position? • Financial Managers / Business Advisors • Directors and Officers • Stock Brokers / Investment Houses • Lawyers • Accountants • Actuaries/Benefit Consultants • Insurance Agents/Brokers

  15. External Influences: Real Property Economy • Unemployment • Delinquencies ( > 30 days) 4th Q 2001 4.67% 4th Q 2002 4.53% 1st Q 2003 4.52% • New Foreclosures 4th Q 2002 0.25% 1st Q 2003 0.37%

  16. External Influences: Real Property • Economy • Overall downturn • No Longer Profitable to Move Ahead • Large Commercial Bankruptcies • Some specific areas in difficulty • Northwest - Again • Southeast

  17. External Influences: Real Property • Real Property • Lawyers / Title Companies • Accountants • Architects and Engineers • Real Estate Agents • Appraisers / Inspectors • Lenders - Predatory Lenders • Who put me in this position?

  18. External Influences:Judicial • Judicial System • American ideal • Something bad happens • “It’s not my fault” • Someone will pay

  19. External Influences:Judicial • Judicial System (Con’t) • Legal system supports “innovative” claims • Legislation changes options • Lawyers seek new channels • Legal “Fads” • Construction defect • Mold • Medical Malpractice - again

  20. External Influences:Judicial • Judicial System (Con’t) • Texas and Florida • No Sealed Settlements • Increase Insurance Costs?

  21. External Influences: Regulatory • SEC - Misfeasance or Malfeasance? • Enron • World com • Tyco • ImClone

  22. External Influences: Regulatory • Insurance • Insurance Company Insolvencies Increasing • Reliance • Kemper • ROA and affiliated companies • NAIC wants Independent Audit of Data Underlying Actuarial Opinion • More Accountability for Opining Actuary

  23. Effects on Non Medical Malpractice Who Sues? • Financial Advisors • Individuals to Whom Advice Given • Options • Investments • Shareholders - Individual or Class Action • SEC - Civil and/or Criminal • Enron - D&O, Accountants • ImClone - D&O, “Insiders”

  24. Effects on Non Medical Malpractice Who Sues? • Financial Advisors (Con’t) • Insurance Departments - Civil and/or Criminal • Pennsylvania - Directors, Officers, “Insiders”, Actuary, Accountants • Massachusetts - Directors, Officers, Actuary • A.M. Best?? • Investment Advisors??

  25. Effects on Non Medical Malpractice Who Sues? • Real Property • Homeowners/ Homeowner Associations • Radon, Environmental • Subsidence • Mold • Investors/Developers • Wrong Property • Odors

  26. Effects on Non Medical Malpractice Who Sues? • Real Property (Con’t) • State/Townships • Delaware Hotel

  27. Effects on Non Medical Malpractice Occurrence v Claims Made Coverage Occurrence

  28. Effects on Non Medical Malpractice Occurrence v Claims Made Coverage Claims Made

  29. Effects on Non Medical Malpractice Claims Made Coverage • Reported Claims • Know Claim Count • “John Doe” Defendants • Embedded Problems • Past Years Exposures • Shifting Mix

  30. Effects on Non Medical Malpractice Claims Made Coverage (Con’t) • Extended Reporting Endorsement - “Tail” • Entitlement to Coverage • May Be Free • May Be Unlimited • One Policy Limit - Generally

  31. Effects on Non Medical Malpractice • Data • Delay in Effect Due to Claims Made • Increased Frequency 1998-2002 • Increased Severity 1998-2003 • Client Security Violations 2002-2003 • Tail Claims ?

  32. Reserving for Non-MedicalProfessional Liability Casualty Loss Reserve Seminar September 8-9, 2003 Chicago, IL Kim E. Piersol,FCAS, MAAA

  33. State of the Insurance Marketplace • The Marketplace is HARD • Profitability Not Perceived - Decreasing Acceptable Combined Ratios (see Issue #3) • Difficulty Purchasing Coverage/Coverage Narrowed, Limits Reduced, etc. • Gravitation Away From Both Very Large and Very Small Insureds

  34. State of the Insurance Marketplace • The Marketplace is HARD (Con’t) • Recognition of Large Reserve Deficiencies (see Issue #1) • Growth in Alternative Markets • Growth in “Distressed” Risks/Gravitation to Surplus Lines

  35. State of the Insurance Marketplace • Underwriter Withdrawals (Some Involuntary) • Kemper Specialty • Virginia Surety • Lexington Insurance Company • Etc., Etc.

  36. State of the Insurance Marketplace Current Primary Players

  37. State of the Insurance Marketplace • New Players/Alternative Markets • Underwriters Come and Go • RRGs • Purchasing Groups • Captives (Difficulty Finding Paper/Reinsurance) • Self-Insurance • Capital Markets

  38. State of the Insurance Marketplace

  39. State of the Insurance Marketplace“Unique” Reserving Issues • Increased Pressure on Profitability – Each LOB/Program Must Meet Owners Goals and Targets • Tendency to Strengthen Reserves (“Prior Regime’s Fault”) • Pressure (Perceived or Real) on Claims • Issue #1 – Your Company Changes Ownership and/or CEOs

  40. State of the Insurance Marketplace“Unique” Reserving Issues • Adjusters to Set-Up “Ultimate” Case Reserves • Reverse Is Usually True in Due-Diligence Situations • Issue #1(Con’t) – Your Company Changes Ownership and/or CEOs

  41. State of the Insurance Marketplace“Unique” Reserving Issues • Since Non-Medical PL Lines are Claims-Made, ANY CHANGE IN CASE RESERVING PHILOSOPHIES WILL DRAMATICALLY AFFECT THE RESERVING ACTUARY • Issue #1(Con’t) – Your Company Changes Ownership and/or CEOs

  42. State of the Insurance Marketplace“Unique” Reserving Issues • Shy Away From “Standard” LDF Reserving Approaches • Incurred Loss Development • Paid Loss Development (yes, even the payment patterns can be affected) • Backward-Recursive • Partial Solutions to Issue #1

  43. State of the Insurance Marketplace“Unique” Reserving Issues • Depending on Size of Book (Stability), Using Berquist/Sherman Adjustments May Do the Trick on Loss Development Methods • Since It Is a Claims-Made Product, Frequency (a given) x Severity May Work Well • Pay More Attention to Large, Unpaid Losses • Partial Solutions to Issue #1

  44. State of the Insurance Marketplace“Unique” Reserving Issues • Many Companies Write Several Different Non-Medical Lines • Many Companies Enter & Exit Lines Individually and/or Rate of Growth May Differ Significantly • Issue #2 – Mix of (Sub) Lines-of-Business

  45. State of the Insurance Marketplace“Unique” Reserving Issues • Keep Lines-of-Business Separate (Backward-Recursive Usually Works Well) • If You Must Combine, Recognize Mix Change in Development Factor Selections • Partial Solutions to Issue #2

  46. State of the Insurance Marketplace“Unique” Reserving Issues • Pressure to “Not Show a Loss” on New Lines • Non-Medical PL Pricing Experience Data for New Entrants Basically Non-Existent or Not-Applicable (See Also Issue #7) • Pressure to Produce – Pricing Off “Lowest” Competitor • Issue #3 – The Use of “Pegged” Loss Ratios for “New” Lines-of-Business

  47. State of the Insurance Marketplace“Unique” Reserving Issues • “Let’s Wait Until We Have the Experience to Reserve For This” – HUH?? • Historically, “Pegs” Are Usually Based on Underwriting or Economic Break-Even • Issue #3 (Con’t.) – The Use of “Pegged” Loss Ratios for “New” Lines-of-Business

  48. State of the Insurance Marketplace“Unique” Reserving Issues • Always Consider Murphy’s Law • Never Lose Sight That Under Reserving Effects Will Multiply, • $50 million book pegged at a 75.0% • If it develops to a 175.0%, you’re $150 million in-the-hole after three years • Partial Solutions to Issue #3

  49. State of the Insurance Marketplace“Unique” Reserving Issues • Importance of Range, “What If” Analyses Up-Front • Partial Solutions to Issue #3 (Con’t)

More Related