1. Cresting or Crashing John Geisbush, Marsh Global Broking Judy Hart, Endurance Re Jim Hurley, Tillinghast - Towers Perrin Tim Morse, CNA HealthPro This document was designed for discussion purposes only and is not intended to present detailed information on our analysis and findings. It is incomplete, and not intended to be used, without the accompanying oral presentation and discussion. S:\People\Hurlj\Presentations\PLUS Mtg 32102.ppt The Medical Professional Marketplace in 2002 March 2002

2. 2 The Medical Professional Liability Marketplace in 2002 Agenda MPL market - financial status …been there before? …so is this a crisis? …so what do the stakeholders do? …so what’s next? 2

3. 3 The Medical Professional Liability Marketplace in 2002 Source: Best’s Aggregates and Averages 3

4. 4 The Medical Professional Liability Marketplace in 2002 Source: Best’s Aggregates and Averages 4

5. 5 The Medical Professional Liability Marketplace in 2002 Source: Best’s Aggregates and Averages 5

6. 6 The Medical Professional Liability Marketplace in 2002 Source: Best’s Aggregates and Averages 6

7. 7 The Medical Professional Liability Marketplace in 2002 Source: Best’s Aggregates and Averages 7

8. The Medical Professional Liability Marketplace in 2002 8

9. 9 Source: Best’s Aggregates and Averages 9

10. 10 The Medical Professional Liability Marketplace in 2002 Source: Best’s Aggregates and Averages 10

11. 11 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” Common Threads Delivery of healthcare Public perception of healthcare Overall economic conditions Unexpected movement in loss trends Composition of medical liability insurance marketplace Legislative / regulatory issues

12. 12 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEORE” - MID-1970’S Inputs Higher expectations due to success of drug therapies and surgical outcomes Fee-for-service model Collapse of eleemosynary defense Frequency increases Anesthesia is focus Commercial carriers dominate Stock market collapse - assets in equities Crisis of availability

13. 13 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” - MID-1970’S Outcomes Birth of healthcare risk management Claims-made introduced Commercial carriers withdraw Medical society / hospital association carriers form JUA / PCF’s come into being Tort reform enacted - generally procedural

14. 14 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” - MID-1980’S Inputs HMOs come into vogue Societal expectations increase - “Dr. Welby” office Depressed economic conditions Plaintiffs’ bar catches up with defense Obstetrics is focus Frequency increases Crisis of affordability

15. 15 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” - MID-1980’S Outcomes DEFENSIVE medicine grows / attacked Medical specialist carriers grow and prosper Commercial carriers emerge Alternative risk transfer vehicles emerge Tort reform but also onerous insurance regulation Medical liability most profitable insurance sector

16. 16 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” - 2001 ‘TIL? Inputs Healthcare is major public policy issue Plurastic healthcare models co-exist General economic downturn Failure to diagnose is focus Institutions and long-term care at forefront Severity spikes / large loss activity grows Public desensitized to large numbers Calls for tort reform abound Market dislocation but new entrants emerge

17. 17 U.S. Median Medical Liability Awards and Settlements 200 300 400 500 600 700 800 1993199419951996199719981999 $ in Thousands Settlements Awards Source: Jury Verdict Research The Medical Professional Liability Marketplace in 2002

18. 18 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” - 2001 ‘TIL? Inputs Healthcare is major public policy issue Plurastic healthcare models co-exist General economic downturn Failure to diagnose is focus Institutions and long-term care at forefront Severity spikes / large loss activity grows Public desensitized to large numbers Calls for tort reform abound Market dislocation but new entrants emerge

19. 19 The Medical Professional Liability Marketplace in 2002 “WE’VE BEEN THERE BEFORE” - 2001 ‘TIL? Outputs ???

20. 20 The Medical Professional Liability Marketplace in 2002 SO IS THIS A CRISIS? Increased pricing and retentions a result of adverse loss experience Strict underwriting and actuarial discipline is back in vogue after many years of absence All exposures being “rated” and priced

21. 21 The Medical Professional Liability Marketplace in 2002 SO IS THIS A CRISIS? “Generally” significant commercial capacity still available Dormant capacity or limited players historically become more active New capacity developing in US, Europe and Bermuda

22. 22 The Medical Professional Liability Marketplace in 2002 SO IS THIS A CRISIS? Alternative mechanisms (Captives, RRGs) alive and part of the risk financing solution Properly structured alternatives can balance cost and security to a degree

23. 23 The Medical Professional Liability Marketplace in 2002 IMPLICATIONS FOR STAKEHOLDERS Consumers/Employers Double-digit medical inflation already affecting cost Access to healthcare may suffer in some states Enhanced communication needed to clarify issues Quality concerns continue

24. 24 The Medical Professional Liability Marketplace in 2002 IMPLICATIONS FOR STAKEHOLDERS Healthcare Providers Financial pressures may inhibit traditional solution Paradigm shifts will be necessary Insurer insolvency may strain self-insured vehicles Added need to take “ownership” in all aspects of risk

25. 25 The Medical Professional Liability Marketplace in 2002 IMPLICATIONS FOR STAKEHOLDERS Brokers / Agents World class selling and negotiation skills critical Increased customer/carrier touch = productivity strain Uncertain financial stability/insurer insolvency strain relationships/challenge placements Technical expertise and healthcare specialists “rise to the top”

26. 26 The Medical Professional Liability Marketplace in 2002 IMPLICATIONS FOR STAKEHOLDERS Carriers / Reinsurers It’s time to sort things out Get it right, keep it right Don’t just look to price to solve the problem. Engage in loss prevention, good claims management, tort reform initiatives Get to know your clients, your brokers, the risk you assume. All accounts are different. Get out of the box! but maintain credibility in what you do  Improved pricing is available, but don’t forget to underwrite

27. 27 The Medical Professional Liability Marketplace in 2002 SO WHAT DOES THE FUTURE HOLD? Further rating downgrades Additional retrenchment/withdrawal Continued pricing and retention increases New capacity Greater consideration of alternative options by clients with predictable loss exposure Increased risk financing expenditures will cause greater clinical risk management and proactive claims defense Further discussion and consideration of tort reform state by state

28. 28 The Medical Professional Liability Marketplace in 2002