1. No Fault Then and Now 2003 CAS ANNUAL MEETING Presented by Steven G. Lehmann, FCAS, FSA, FCIA, MAAA Pinnacle Actuarial Resources, Inc. www.pinnacleactuaries.com November, 2003

2. Colorado No-Fault Born: April 1, 1974 Died: July 1, 2003

3. Context Report for the Colorado Auto Insurance Working Group to determine cost implication of two possible scenarios for Colorado’s No-Fault Law (1) a comprehensive re-write of the no- fault law (2)The complete repeal of the no-fault law

4. Background Original law effective April 1, 1974 Tort threshold for non-economic losses $500 Death Dismemberment Permanent Disability Permanent Disfigurement Monetary threshold changed to $2,500 in 1985

5. Background (cont’) PIP Benefits (Effective 1/1/85) $50,000 medical (originally $25,000) $50,000 rehabilitative services (orig. $25,000) Up to $400 per week loss of income for 52 weeks (orig. $125 per week) $25 per day essential services $1,000 per person death benefit Basic policy available for low-income

7. Average PIP Pure Premium Changes CountrywideColorado Last 5 years + 27% +49% Since 1975 +574% + 1,320%

8. Study Findings Estimated Premium Effect All Coverages State Mandated Coverages 1 No-fault overhaul with 8-points- 10% to – 14%- 20% to – 28% 8-pt. (Med. Protocols, Reasonable & Nec., PIP limit to Med, Ext. review) 0% to – 4%0 % to – 8% 8 –pt. Optional Non-traditional- 4%-9% 8-pt. Optional Essential Services- ½%-1% 8-pt. Optional Wage-2%-4% Verbal Threshold-3%-6% 2 No-fault overhaul with all elements/$25,000 PIP-13% to – 16%-26% to – 32% 3 No-fault overhaul with all elements/$50,000 PIP-11% to – 15%-22% to – 29% 4 No fault overhaul with $25,000 PIP + $75,000 catastrophe (7+consecutive days in hospital) -10% to – 14%-20% to – 28% 5 Tort with no med pay-17%-36% 6 Tort with $2,500 med pay-11%-36% 7 Tort with $5,000 med pay-9%-36% 8 Tort with $10,000 med pay-7%-36% 9 Tort with $25,000 med pay-4%-36%

9. Determination of Impact of No-Fault Repeal 1999 IRC Study Effects of introduction of prior No-Fault laws Experience of states that have repealed no- fault laws

10. Experience of States That Have Repealed No-Fault Laws 1)Georgia ($500 medical threshold) BI pure premium effect +8% to 12% 2)Nevada ($750 medical threshold) BI pure premium effect +17% to 24% 3)Connecticut ($400 threshold) BI pure premium effect – 3% to +4% 4)Colorado ($2500 threshold) Estimated BI pure premium effect +25%

11. Study Conclusions - No-Fault Repeal Est. Premium Effects BI + 22% UM + 11% Liability pkg. w/o PIP - 36% All coverages w/ $5,000 med - 9%

12. Premium Effects of No-Fault Repeal

13. Supplementary Information Cost Containment PA PIP: February 7, 1990 Reduced required medical benefit from $10,000 to $5,000 110% of Medicare fee schedule Peer review

14. Supplementary Information

15. Supplementary Information Cost Containment Hawaii - 1993 Limited PIP charges to workers compensation fee schedule (Medicare +10%) Limits did not apply to emergency medical treatment

16. Supplementary Information Cost Containment

17. Cost Containment - Conclusion Introduction of medical fee schedule of 110% of Medicare will reduce PIP losses by 13% - 19%