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Personal Auto: Special
Reserving Issues
Casualty Loss Reserving Seminar
Steven G. Lehmann
Atlanta, GA
September 11, 2006
New Jersey Supreme Court Decisions
DiProspero v. Penn
And
Serrano v. Serrano
June 14, 2005
Pinnacle Actuarial Resources, Inc.
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Background
I. Oswin v. Shaw (1992)
Under the New Jersey no-fault tort threshold,
in addition to proving that the injury fell within
one of the nine verbal thresholds, the victim
had to prove that the injury had a serious
impact on the life of the victim.
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Background
II.
The Automobile Insurance Cost Reduction Act
(AICRA). March, 1998.
Those policyholders who elect the “limitation on
lawsuit” threshold receive lower premiums in
return for limiting their right to sue for noneconomic damages.
Under AICRA, one may only sue for non-economic
losses if the victim suffers bodily injury resulting in
one of six defined categories:
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Background
Six Defined Categories
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
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death
dismemberment
significant disfigurement or scarring
displaced fractures
loss of a fetus
permanent injury other than scarring or
disfigurement
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The Supreme Court Decision:

Issue was whether the “serious life impact”
test applies to accidents under AICRA

Court decided that it did not

Potentially far reaching decision increasing
auto insurance costs in New Jersey
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Effect of the Decision:


Pinnacle Actuarial Resources was originally
retained by the Save Choices for New Jersey
Drivers group in fall of 2003
Charge: conduct an independent actuarial
study to determine the cost implications of
two bills introduced in New Jersey to
eliminate the “serious life impact” test
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Effect of the Decision:
(continued)
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Report was based on a special survey of
automobile closed claim and the 1999 IRC
Study
As a result of the DiProspero v. Penn
decision, Pinnacle was asked to update the
study
Revised Pinnacle Report, November 2005
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Effect of the Decision:
(continued)

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Entitled: New Jersey Automobile No Fault Study Analysis of Impact of the Elimination of the
Serious Impact on One’s Life Requirement for Tort
Recovery in New Jersey
Used original closed claim study plus 2003
IRC study
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Effect of the Decision:
(continued)

Concluded that the best estimate of the
impact of the Supreme Court decision is an
increase in Bodily Injury and UM/UIM costs
for drivers selecting the verbal no-fault
threshold option of between 36% and 57%
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How does all this affect the Loss
and Loss Adjustment Expense
Reserves for 2005 and Beyond?
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1)
2)
3)
4)
5)
More claims crossing the threshold i.e.,
claims frequency
Possible impacts on claim severity
Impacts on expected loss ratios used in
Bornhuetter-Ferguson methods
Potential changes in loss development
patterns
Reopened claims potential
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What has happened since June of
2005?
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Fast Track Plus TM
Private Passenger Auto Loss Data and Trends
New Jersey
Year
Quarter
Ending
2001
2002
2002
2002
2002
2003
2003
2003
2003
2004
2004
2004
2004
2005
2005
2005
2005
2006
-
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
Pure
Premium
195.47
189.11
179.20
170.71
161.18
157.75
155.53
153.80
152.57
151.78
150.09
151.15
149.69
147.61
148.91
148.48
150.68
149.32
Bodily Injury
Paid
Paid
Claim
Claim
Freq.*
Cost($)
0.89
0.87
0.84
0.81
0.78
0.75
0.73
0.73
0.73
0.72
0.72
0.71
0.69
0.67
0.64
0.61
0.59
0.58
21,968
21,704
21,239
20,976
20,795
21,003
21,257
21,182
21,026
21,009
20,916
21,390
21,657
22,036
23,186
24,221
25,374
25,690
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Arising
Claim
Freq.*
2.41
2.28
2.15
2.06
1.94
1.89
1.84
1.81
1.79
1.78
1.76
1.74
1.73
1.70
1.68
1.65
1.60
1.58
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