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

2. A Brief Recap

3. Cyclical Swings

4. 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 1999-2000 market is gone Another 10-20% has been downgraded severely enough to impact the availability of coverage

5. 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%

6. Widespread, but not Uniform

7. 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

8. 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

9. Industry Reserve Development

10. 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

11. Signs of Intrigue - Affordability YearPremiumAnnual Change 2003213,76330.0% 2002164,43740.5% 2001117,04912.7% 2000103,85927.0% 199981,76517.2% 199869,78612.1% 199762,259-7.3% 199667,141+5.7% Annual Average16.7% Broward County, FL General Surgeons Source: Medical Liability Monitor

12. Regulators “Inescapable” Conclusion The current system is woefully inefficient

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

14. 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)

15. 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. 80267- Pediatrics) Insured Limits Indemnity Paid (Medical, Wage & Other; future) Loss Adjustment (Defense Costs vs. Other ALAE) Non-Economic Loss

16. Severity Trends by Occurrence Year

17. Non-Economic Damages by Occurrence Year

18. Claim Severity by Injury Type Over Time

19. Impact of Attorney Involvement on Claim Severity

20. Severities by Settlement Lag

21. ALAE / Loss+ALAE by Settlement Lag

22. Severities By Claim Type

23. Differences by Age & Sex

24. 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

25. 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

26. 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…