Auto Injury Claims: The What, Why, and How of it All CAS Spring Meeting – May 16, 2005 Phoenix, AZ

1. Auto Injury Claims: • The What, Why, and How of it All • CAS Spring Meeting – May 16, 2005 Phoenix, AZ • Adam Carmichael, IRC Senior Research Associate

2. What IRC Study of Closed Auto Injury Claims • History • Methodology • Sample

3. 2002 Study of Closed Injury Claims Are injuries becoming more serious? • No. • Injury types show little change. • Claimants overall appear to be less • seriously injured than in the past.

4. 2002 BI Injury Types Are Similar to Those in 1997 Percentage of BI claimants with each type of injury *Headache was a write-in category in 1997.

5. BI Claimants PIP Claimants Little Change in Most Serious Injury Types Percentage of claimants with neck/back sprain/strain as most serious injury

6. Hospital Admissions Maintain Declining Trend Percentage of claimants admitted to hospital for 1+ nights

7. Increase in Claimants With No Disability Percentage of claimants with no disability

8. More Claimants Reporting No Restricted Activity Percentage of claimants reporting no days of restricted activity

9. Over Half of Claimants Lost Time From Work Percentage of employed claimants who lost time from work PIP Claimants BI Claimants 7 days 6 days 8 days 5 days Median number of lost work days

10. 2002 Study of Closed Injury Claims Trends in the medical treatment of injuries • Shift towards more expensive alternatives • Rise in per-visit costs

11. Steady Increase in Use of Some Medical Professionals Percentage of BI claimants using each type of medical professional n/a n/a n/a: Data not available.

12. Average Charges Per Visit for Select Professionals 1997 versus 2002 BI Claimants PIP Claimants +37% +64% +62% General Practitioner Physical Therapist General Practitioner Physical Therapist Chiropractor Chiropractor Excludes permanent total disability and fatality claimants.

13. Average Charges Per Visit for Select Professionals BI versus PIP 1997 2002 General Practitioner Physical Therapist General Practitioner Physical Therapist Chiropractor Chiropractor Excludes permanent total disability and fatality claimants.

14. Shift Towards More Expensive MRIs Percentage of claimants receiving each procedure BI Claimants PIP Claimants 1997 2002

15. Average Charges Per Procedure for Select Diagnostics 1997 versus 2002 BI Claimants PIP Claimants +60% +87% +104% +87% X-Ray CT X-Ray CT MRI EMG MRI EMG Excludes permanent total disability and fatality claimants.

16. 2002 Study of Closed Injury Claims Reported economic losses (special damages) have surged. • Largely driven by growth in • medical expenses • Growth in wage and other • losses more modest

17. Increase in Average Reported Economic Loss Average amount of reported economic loss Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss.

18. 1987 1992 1997 2002 Annualized Change in Average Economic Loss MP BI PIP CPI - All CPI - Medical

19. Up 28% Up 5% Up 47% Up 10% Increase in Reported Medical Expenses Average PIP Claimed Losses Average BI Claimed Losses 1997 2002 Standard exclusions apply.

20. Medical Losses Are a Growing Component of Economic Loss Medical loss as a percentage of total economic losses Standard exclusions apply.

21. 2002 Study of Closed Injury Claims Total Payments have not fully reflected the surges in reported economic losses (special damages) Especially among BI claimants with less serious injuries

22. Growth in Average Economic Losses and Payments • Percentage change from 1997 to 2002 Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss.

23. BI Payment Per Dollar of Claimed Economic Loss Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss.

24. Loss = $1,975 BI Paid = $4,265 Loss = $2,118 BI Paid = $3,738 Loss = $2,600 BI Paid = $4,103 $2.16 $1.76 $1.58 BI Payment Per Dollar of Economic Loss – Neck/Back Sprains 1992 1997 2002 Only claimants with no days of restricted activity.

25. Loss = $48,418 BI Paid = $46,744 Loss = $51,274 BI Paid = $50,380 Loss = $56,173 BI Paid = $65,675 $1.17 $0.98 $0.97 BI Payment Per Dollar of Economic Loss – Brain Injury 1992 1997 2002 Excludes permanent total disabilities. More than ½ had more than 60 days of restricted activity.

26. Growth in Economic Losses and BI Payments by Restricted Activity • Percentage change from 1997 to 2002 Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss.

27. Percentage of claimants 76% 79% 24% 21% BI Payment Per Dollar of Economic Loss by Restricted Activity Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss or missing days of restricted activity.

28. 2002 Study of Closed Injury Claims Claim Handling Techniques Help ensure that claimants with legitimate injuries are fairly compensated

29. Claim Handling Techniques • Percentage of claimants subject to each technique

30. Claim Handling Outcomes • Percentage with mitigating outcomes • among claimants subject to each technique

31. 2002 Study of Closed Injury Claims Attorney Involvement • Fewer claimants are hiring attorneys • Claimants without attorneys receive higher net payment and experience faster settlement

32. Decrease in Percentage of Claimants Represented by Attorneys • Percentage hiring attorneys

33. Percentage of Payments to Represented Claimants

34. Attorney No Attorney Disability Measures by Attorney Involvement Percentage of BI claimants

35. Attorney No Attorney Treatment Differentials by Attorney Involvement Employed claimants with no lost time from work and neck/back sprain/strain as most serious injury PIP Claimants BI Claimants

36. Average Net Payment to BI Claimants by Attorney Representation Average Economic Loss $12,993 Legal Expense Average Net to Claimant $3,490 $1,309 Difference Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss.

37. Net Reimbursement by Attorney Involvement Over Time • Difference between average net BI payment • to represented claimants and nonrepresented claimants Net payment=Total payment minus economic loss and any applicable legal fees. Excludes permanent total disability and fatality claimants and claimants with zero or missing economic loss.

38. BI Claimants Without Attorneys Received Faster Settlements Days between injury report and final payment

39. 2002 Study of Closed Injury Claims Fraud and Buildup • Suspicion in 15 to 30 percent of claims • Medical expenses most common source of buildup • More chiropractor, physical therapists, alternative care, and pain clinics • More MRI and EMG • Higher average losses in fraud & buildup claims • Higher attorney involvement

40. Appearance of Fraud & Buildup by Coverage Percentage with Appearance of Fraud and of Buildup

41. Claim Handling Techniques Used to Detect Fraud & Buildup Percentage of PIP Claims

42. Summary of Key IRC Closed Claim Findings • Injury patterns show little change • But claimants appear to be less seriously injured • Modest increases in several areas of medical treatment • Shift towards more expensive treatment • Higher per-visit costs

43. Summary of Key IRC Closed Claim Findings • Significant growth in reported economic losses • Largely driven by growth in medical expenses • More pronounced in first-party claims • Not fully translated into total payments especially for BI claimants with less serious injuries • Attorney involvement • Shows declines for all coverages • Magnifies many adverse trends in claiming behavior • Associated with higher reported losses and significantly lower net BI payment to claimant