Transcript Download Handout 3

The Medical Professional
Marketplace and
The Buyer’s Response to It
Jack Jensen
HealthCare Practice Leader
Casualty Actuarial Society
Boston, MA
November 11, 2002
Table of Contents
I.
Scary Movie Slides
II.
Buyer’s Response Slides
Medical Malpractice Combined
Ratio Continues to Climb
155
150
145
140
135
130
125
120
115
110
105
100
Medical Malpractice
All Lines
1997
1998
1999
Source: A.M. Best’s
2000
2001
90
Inland Marine
93
100
103
102
131
153
140
110
108
134
130
2001 (est.)
Property
Medical
Malpractice
2000
115
116
118
136
132
1999
Commercial
Auto
112
109
115
118
129
130
General
Liability
Commercial
Packages
118
115
110
Workers
Compensation
Combined Ratios by Coverage Line
Data Source: A.M. Best Company
120
Estimated Medical Malpractice
Reserve Position
All Years Total: $(1.7) billion
0.5
200
(200)
-0.5
-1
(400)
(600)
-1.5
Source: Conning & Company
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
(800)
-2
19
$ in millions
00
Medical Malpractice Claim
Severity is Increasing
$ in Thousands
U.S. Median Medical Liability Awards and Settlements
1,000
900
800
700
600
500
400
300
200
100
0
$1,000,000
$500,000
1993
1994
1995
1996
1997
1998
Source: Jury Verdict Research
1999
2000
Settlements
Awards
Medical Malpractice Severity is Increasing
Sample Large Awards
1997
$27,570,327
Queens County, NY
$23,530,746
Boone County, KY
$19,275,466
Queens County, NY
$18,924,000
Dade County, FL
$15,700,000
LA County, CA
$15,317,000
Oakland County, MI
$15,000,000
Philadelphia County, PA
$14,460,000
Cuyahoga County, OH
$12,381,670
US District, HI
$11,500,000
Kings County, NY
$10,800,000
Cook County, IL
$10,600,000
Cook County, IL
Source: Jury Verdict Research & West Law
Medical Malpractice Severity is Increasing
Sample Large Awards:
2000-2001
$269,000,000
Dallas County, TX
$108,000,000
Bronx County, NY
$100,000,000
Philadelphia County, PA
$75,000,000
Nassau County, NY
$60,686,150
Los Angeles County, CA
$55,439,270
Cook County, IL
$49,594,684
Philadelphia County, PA
$41,444,531
Kings County, NY
$32,676,410
TX
$31,100,000
Escambia County, FL
$30,000,000
New Haven, CT
$23,500,000
Cuyahoga County, OH
Source: Jury Verdict Research
Medical Malpractice Premiums
“In Play”
St. Paul
PHICO
Frontier
Travelers
MIIX
SCPIE
TIG
$ 534 million
135
59
28
185
151
100
$1.192 billion of premiums
in need of a new home
Institutional Provider Markets
United States
AIG
Ace
Arch
Berkley
Chubb
CNA
ERC
One Beacon
Zurich
Axis
Green - CAT Excess Only
Red - New Markets
Bermuda
AWAC
Endurance
XL
Starr
Ace
European
SwissRe
HannoverRe
London Market
Response of Medical Malpractice
Insurers
•
•
•
•
Underwriting discipline is now the focus
Withdrawal of capacity
Reduction in offered capacity
Continued pricing increases
• INCREASED DEPENDENCY ON
ACTUARIAL REVIEWS
• Increased self-insured retentions
• Limitations in coverage
Buyer’s Response
(Institutional)
• Dramatically Increased Risk Retained
• Formalization of Risk Retention Vehicles
· Trusts
· Captives (est. 24 new Marsh HC captives
in 2002)
· RRG’s and Pooling Vehicles
• Focus on Carrier Credit Quality
• Channeled Physician Programs
(See Physician Response)
Increased Risk Retention
(Institutional)
1. Disappearance of primary risk transfer coverage in some venues
2. Much higher primary per claim retentions.
3. Loss of aggregate stop loss protection.
4. If aggregate stop survives then imposition of surviving retentions
(aka maintenance deductible).
5. Inner Aggregate Deductible on first layer excess policies.
6. Retro Rating (swing plans) on first excess coverage.
7. Quota Share Excess participation by insured or its captive.
Challenge: How to fit the client’s
consulting actuary’s loss
projection model into these
more complex retention
schemes
Managed Care Organizations
Primary E&O Markets
Here
Gone
Chubb
TIG
AIG
CNA
BCS (limited)
Steadfast
St. Paul
Farmers
Some PIAA’s
Managed Care E&O
Average Per Enrollee Per Year (PEPY)
2000
2001
2002
25,000-
350,001-
1,000,001-
5,000,001
2000
$0.93
$0.43
$0.35
$0.44
2001
$1.52
$0.49
$0.68
$0.41
2002
$1.71
$2.04
$1.60
$0.81
Cost PEPY
$3.00
$2.00
$1.00
$0.00
By No. of Enrollees
Managed Care E&O
Average Retentions Graph
2000
2001
2002
25,000,000
20,000,000
Retentions
15,000,000
10,000,000
5,000,000
0
25,000350,000
350,0011,000,000
1,000,0015,000,000
2000
47,100
255,000
370,000
958,333
2001
89,444
291,667
1,568,182
3,458,333
2002
218,421
750,000
2,520,833
23,666,667
By No. of Enrollees
5,000,001 and
up
Actuarial Challenge for MCO’s
Akin to Mid 70’s on Provider Side
• Retained Risk has gone from small to humongous
• Historical claims data resides with carriers (or if with insureds, often
not in a data base)
• How to make a loss pick even if perfect historical data exists if:
· “class action” threats generate a sea change in liability dynamics
· ERISA protections are eroding
· Industry itself is changing its approach to utilization controls
Medical Malpractice – Physician Markets
Comparison of Loss, Underwriting Expense &
Combined Ratios
140%
138%
120%
124%
112%
100%
115%
111%
110%
116%
113%
103%
98%
93%
80%
93%
92%
92%
60%
40%
20%
17%
15%
22%
19%
21%
22%
22%
0%
1995
1996
1997
1998
1999
2000
Calendar Year
Underwriting Expense
Loss
Combined
2001
Medical Malpractice – Physician Markets
Net Income as a Percent of Premiums
25.0%
23.3%
20.0%
19.3%
20.2%
15.0%
16.1%
12.3%
10.0%
5.0%
4.0%
0.0%
-5.0%
-9.9%
-10.0%
1995
1996
1997
1998
1999
Calendar Year
2000
2001
Physician Response
I. Looking to Government:
• JUA’s or Similar (NH, RI, WV, SC, MS)
II. Looking to Hospitals:
• Hospital Sponsored PIAA Programs (drying up)
• Hospital Deductible Payment Programs
• On-Call Hospital Risk Assumption
• Hospital Owned Captive Channeling
• Hospital Investment in RRG arrangements
III. Looking to Managed Care Organizations:
• Neither physicians nor MCOs appear to be motivated
to move forward in the channeled med-mal arena
IV. Looking to Physician Specialty Organizations:
• RRG’s and similar poolings
Territory
1
1A
2
3
4