The Opportunity Presented by Medical Malpractice Databases and GLM CAS GLM Seminar October 4, 2004 Robert J. Walling, FCAS, MAAA

A Brief Recap

Cyclical Swings

Availability Problems Frontier – Rehabilitation 8/01 Reliance – Liquidation 10/01 St. Paul – Exits Market 12/01 PHICO – Liquidation 2/02 MIIX – Voluntary Run-off 5/02 Reciprocal of America Group – Liquidation 6/03 Legion – Liquidation 7/03 Over 30% of the market is gone Another 10-20% has been downgraded severely enough to impact the availability of coverage

Availability Problems State% Displaced AR52.6% DE67.8% IA37.8% KS35.6% LA36.5% MT33.9% ND36.2% NE47.5% NH46.7% State% Displaced NJ53.4% NV40.6% PA43.1% PR39.0% SC60.5% SD68.5% VT36.8% WV42.5%

Widespread, but not Uniform

A Brief Recap – Industry Perspective Severities Gone Wild ● Negative Outcomes, Unpredictable Costs Not Malpractice (Timing & Magnitude) ● Market Exits Due to Entitlement Juries Inadequate Rates Big Attorney Pay Days Caps on Non-Economics ● Caps on Atty Cont. Fees

A Brief Recap – Trial Bar Perspective Insurance CompaniesHealthcare Providers Excessive Profits ● Repeat Offender Docs Destructive Competition ● Defensive Medicine Poor Investment Policy ● No Overall Medical Rate Gouging Outcome Improvement Must Need Better (More) ● Must Need Better (More) State Regulation Oversight

Industry Reserve Development

Signs of Intrigue – “Destructive” Price Competition “While an increase in litigation and higher damages awards are often blamed for rising premiums, insurance companies may be equally culpable due to their pricing policies of the 1990s.” - Robert Wood Johnson Foundation

Signs of Intrigue - Affordability YearPremiumAnnual Change , % , % , % , % , % , % , % , % Annual Average16.7% Broward County, FL General Surgeons Source: Medical Liability Monitor

Regulators “Inescapable” Conclusion The current system is woefully inefficient

Regulators “Inescapable” Conclusion Data for a conclusive answer is rarely available

Various States of Readiness Got it (e.g. FL, ME) Thought they had it (e.g. OR) Just Getting Started (e.g. NC, VT, OH)

Florida Closed Claim Database Injury Location (e.g. Hospital, Delivery Room) Occurrence, Report, Suit, and Settlement Dates Patient Date of Birth, Sex Severity of Injury (e.g. Emotional, Death, Serious) Insured County & County of Suit Method & Stage of Settlement Arbitration indicator Insurer Type Insured Specialty (e.g Pediatrics) Insured Limits Indemnity Paid (Medical, Wage & Other; future) Loss Adjustment (Defense Costs vs. Other ALAE) Non-Economic Loss

Severity Trends by Occurrence Year

Non-Economic Damages by Occurrence Year

Claim Severity by Injury Type Over Time

Impact of Attorney Involvement on Claim Severity

Severities by Settlement Lag

ALAE / Loss+ALAE by Settlement Lag

Severities By Claim Type

Differences by Age & Sex

Other Issues Reviewed Impact of Local Courts Differences by Specialty Impact of Insured Limits Impact of Standard vs. Alternative Mkts Trends by Severity of Injury Location of Injury

Future GLM Directions Better databases will be built Better matching exposures will be available Add US Chamber of Commerce Litigation Rank to Multi-State Analysis Impact of Loss Prevention and System Efficiency Measures Look for Shifts to Economic Damages After Non-Economic Damage Caps

Future Medical Malpractice Directions Trial Lawyers & Insurers will still disagree New medical technology will be developed Diagnoses will not be perfect The struggle to improve medical care; at affordable costs; with reasonable compensation; and an efficient system from strong, stable, responsible insurers will continue…