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IABA Annual Meeting The New Medical Malpractice Crisis: A Historical Perspective

IABA Annual Meeting The New Medical Malpractice Crisis: A Historical Perspective. August 4, 2012 Arthur R. Randolph, II, FCAS, MAAA, CPCU, ARM, ARe Senior Consulting Actuary. Experience the Pinnacle Difference!. Agenda. MPL Claim Characteristics Evolution of the MPL Insurance Market

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IABA Annual Meeting The New Medical Malpractice Crisis: A Historical Perspective

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  1. IABA Annual MeetingThe New Medical Malpractice Crisis:A Historical Perspective August 4, 2012 Arthur R. Randolph, II, FCAS, MAAA, CPCU, ARM, ARe Senior Consulting Actuary Experience the Pinnacle Difference!

  2. Agenda • MPL Claim Characteristics • Evolution of the MPL Insurance Market • Financial Results • Claims-Made vs. Occurrence Coverage Form

  3. MPL Claim Characteristics • Long-tailed coverage • Low frequency • High severity • Long reporting lags • Time between claim occurrence and claim reporting • Injury may not be discovered for years • Statute of limitations • Long settlement lags • Time between claim reporting and claim settlement • Claim complexity – appropriate case reserves • Significant discovery period • Physician reputational risk – duty to defend • Plaintiffs’ bar and “turtle” court systems

  4. Evolution of the MPL Insurance Market • Late 1970s • Most private insurers exit the market • Availability crisis • Response: Emergence of physician-owned insurers (“bedpan” mutuals) • Capacity increases • Initial tort reforms enacted

  5. Financial Results *includes policyholder dividends Source: AM Best

  6. Evolution of the MPL Insurance Market (cont.) • 1980s • Significant rate increases (20%+) following prolonged soft market • Affordability crisis • Reduced reinsurance capacity • Second round of tort reforms • Second wave of “bedpans” enter market – price competition • Form changed from “occurrence” to “claims-made” • Mid to late decade trends • Declining inflation • Loss cost trends subside • Frequency declines

  7. Financial Results (cont.) *includes policyholder dividends Source: AM Best

  8. Claims-Made vs. Occurrence Coverage Form • Advantages of claims-made • No “pure” IBNR – benefits ratemaking and reserving • Shorter projection horizon • Changes in underlying trends are not exacerbated • Disadvantages of claims-made • Pricing and reserving of purchased and “free” tail coverage (DD&R) • Reduced investment income

  9. Evolution of the MPL Insurance Market (cont.) • 1990s • Loss cost trends remain stable/low during early years • Favorable reserve development • Significant investment income • Market flooded by new entrants • Increased capacity • Downward pressure on pricing • Later part of the decade marked by rising claim trends and inadequate reserves

  10. Financial Results (cont.) *includes policyholder dividends Source: AM Best

  11. Evolution of the MPL Insurance Market (cont.) • 2000 – 2003 • Loss cost trends pitch upward – primarily severity • Unfavorable reserve development • remain stable/low during early years • St. Paul exited the market – represented 50% of the market share in some states • Large rate increases • 2004 – 2006 • More appropriate matching of risk to premium • New wave of tort reforms – non-economic damage caps • Frequency plummets

  12. Evolution of the MPL Insurance Market (cont.) • 2007 – today • Reserve releases • Frequency flattens out • Severity still increasing • Darlings of the P&C industry • Return of substantive investment income • Premium volume decreasing • Rate reductions • Physician group acquisitions • Shifts from private practice to employment

  13. Financial Results (cont.) *includes policyholder dividends Source: AM Best

  14. Financial Results (cont.) Source: AM Best

  15. Financial Results (cont.) Source: AM Best

  16. Financial Results (cont.) Source: AM Best

  17. Financial Results (cont.) Source: AM Best

  18. Financial Results (cont.) Source: AM Best

  19. Financial Results (cont.) Source: AM Best

  20. Financial Results (cont.) Source: AM Best

  21. Financial Results (cont.) Source: AM Best

  22. Visit us at pinnacleactuaries.com Questions / Comments Arthur R. Randolph, II,FCAS, MAAA, CPCU, ARM, ARe (770) 587-0351 arandolph@pinnacleactuaries.com Editorial contributor: Kwame A. Davis,FCAS, MAAA Towers Watson Experience the Pinnacle Difference!

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