current issues and trends in medical malpractice casualty loss reserve seminar september 10, 2007...
TRANSCRIPT
Current Issues and Trends in Medical Malpractice
Casualty Loss Reserve SeminarSeptember 10, 2007
Erik A. JohnsonAon Global Risk Consulting
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“Medical Malpractice Trends and Issues”
• Medical Malpractice– Hospital Professional Liability– Physician Professional Liability– Long Term Care Professional Liability
• Trends and Issues– What clients, insurance brokers, and underwriters are
facing– Data based: frequency and severity analysis
3
Hospital Professional Liability – Industry Issues
Hospitals are very experienced with self insurance and large retentions – are sophisticated in pursuing ways to drive down retained costs:
Recent initiatives (chronologically)– Tort Reform initiatives– Investing in defense strategies (ALAE)– Patient Safety Initiatives
Financial officers are sophisticated and wary of “a cycle” of reserve increases and decreases
4
Aon/ASHRM 2006 HPL Benchmarking Study
• Underlying Data: 47,735 non-zero claims; approximately $4.4b in reported losses; over 700 facilities
• Most participants are self-insurers• 8th annual study• Actuarial analysis of Frequency, Severity, and Loss
Cost trends countrywide and in specific states• Claim Severity is limited to $2M per occurrence• Claim Frequency is based on “non-zero” claim count• Exposures are “Bed Equivalents”
5
Key Findings of 2006 Study
• After many years of volatile results, the hospital professional liability trends appear to have stabilized.
• The overall frequency of claims is not increasing for the second straight year for both hospital professional liability and physician liability.
• Four states, Texas, Pennsylvania, Florida and California, each with some form of legislative reform, are significant contributors to the frequency decline experienced in the recent past.
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Key Findings for 2006 (cont)
• The average size of claims continues to increase at a rate of 6.0%. The average expense associated with defending claims is increasing at 17.0% while the average amount paid to indemnify claimants is increasing at 3.0%.
• Patient safety initiatives being implemented today will be critical for sustaining the flat frequency trend into the future.
7
HPL Claim Frequency
• Hospital claim frequency (non zero claims per annual bed equivalent).
Hospital Professional Liability Benchmark Hospital Professional Liability BenchmarkAon Database Aon Database
Historical Frequency Per Acute Care Bed Equivalent Historical Severity per Claim
3.0% 3.0%2.9%
2.7%2.6% 2.6%
2.0%
2.5%
3.0%
3.5%
2000 2001 2002 2003 2004 2005
Accident Year
8
HPL Claim Severity Trend
• Overall hospital average paid indemnity.
Hospital Professional Liability Benchmark Analysis Hospital Professional Liability Benchmark AnalysisClosed Claim Analysis Closed Claim Analysis
Average Paid Indemnity on Claims with Indemnity Payments Average Paid Expense on Claims with Indemnity Payments
Limited to $2M per Occurrence
177,000 180,000
201,000 203,000190,000
207,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2000 2001 2002 2003 2004 2005
Closing Year
9
HPL Claim Severity Trend (ALAE)
• Overall hospital average paid expense on claims closed with indemnity payments.
Hospital Professional Liability Benchmark Analysis Hospital Professional Liability Benchmark AnalysisClosed Claim Analysis Closed Claim Analysis
Average Paid Expense on Claims with Indemnity Payments Average Paid Expense on Expense Only Claims
28,000
35,000
40,000
47,00045,000
58,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2000 2001 2002 2003 2004 2005
Closing Year
10
HPL Claim Severity Trend (ALAE)
• Overall hospital average paid expense on claims closed without indemnity payments.
Hospital Professional Liability Benchmark Analysis Aon Analysis of NPDB Public Use Data FileClosed Claim Analysis Closed Claim Analysis - Physicians
Average Paid Expense on Expense Only Claims Average Paid Indemnity on Claims with Indemnity Payments
Unlimited
6,800
8,7009,700
11,400
15,100
17,400
$0
$5,000
$10,000
$15,000
$20,000
2000 2001 2002 2003 2004 2005
Closing Year
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Physician Professional Liability – Industry Issues
• Price relief in many jurisdictions
• Many hospitals consider bringing high risk specialties into their hospital professional liability program – A great recruiting tool to bring in specialists– A dangerous adverse selection situation– Who is going to underwrite the doctors that enter the
program?
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Physicians Professional Liability Frequency Trend• Overall physician claim frequency (NPDB).
Aon Analysis of National Practitioner Data Bank Public Use Data FileFrequency per Class 1 Equivalent
Countrywide
8.8%
9.8%
8.7%8.3%
7.7% 7.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2000 2001 2002 2003 2004 2005
ORIGYEAR - Year of Settlement
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Physicians Professional Liability Severity Trend• Overall physician average paid indemnity.
Aon Analysis of NPDB Public Use Data FileClosed Claim Analysis - Physicians
Average Paid Indemnity on Claims with Indemnity Payments
Unlimited
203,000
224,000 226,000240,000 245,000 246,000
0
50,000
100,000
150,000
200,000
250,000
300,000
2000 2001 2002 2003 2004 2005
ORIGYEAR - Year of Settlement
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Long Term Care – Industry Issues
• Tort Reform had a major impact in specific states• Large providers invested heavily in defense (legal
staff, mock juries, investigative)• Current strategies to reduce liability costs:
– “get small” – split assets and operations into separate company
– Move away – divest homes in bad legal environments (TX, FL in 2000-02, now AR, MS, TN)
– Buy small or minimum insurance limits
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LTC Benchmarking Database
• 60 LTC providers participated– 15 FP, multi-facility, multi-state– 12 regional, multi-facility, in 2 – 5 states– 33 small independents in only 1 state
• 290,000 licensed beds (255,000 occupied)• 20,000 non-zero claims (over 7 year period)• Study participants represent 15% of the industry,
measured by beds.
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Key Findings of 2006 LTC Benchmarking
• Tort Reform is having a favorable impact on lowering both frequency and severity.
• Operational improvements, a focus on effective defense strategies, and quality of care initiatives are helping to stabilize and/or decrease loss costs, with most measurable impact on severity.
• Structural changes are evident as larger providers exit high cost states, leaving the market to smaller providers and limited liability corporations that typically have less capacity to indemnify claimants.
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LTC is a different exposure (Claim Counts)
1%2%2%3%4%
6%
7%
8%
10%
14%
18%
25%
Fall/Slip: [25%]
Death: [18%]
Abuse/Neglect/Improper Care: [14%]
Decubitus: [10%]
Records Request: [8%]
Other: [7%]
Property: [6%]
Fracture: [4%]
Injury/Laceration: [3%]
Medication Error: [2%]
Transfer Injury: [1.7%]
Dehydration/Malnutrition: [1.1%]
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Countrywide Annual Number of Claims Per 1,000 Occupied Beds
5.6 5.76.5
7.7
9.09.4 9.6
10.1 10.5 10.310.7 11.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Frequency of claims continues to climb. Countrywide, the number of claims incurred per 1,000 occupied beds has doubled from 5.6 in
1995 to 11.1 in accident year 2006.
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Countrywide Severity per Claim
63
,00
0
13
5,0
00
18
2,0
00
26
1,0
00
22
6,0
00
20
5,0
00
18
6,0
00
16
2,0
00
15
9,0
00
15
1,0
00
14
5,0
00
14
6,0
00
0
50,000
100,000
150,000
200,000
250,000
300,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Countrywide trends are driven by reductions in the average severity from a high of $261,000 in 1998 to $146,000 in accident year 2006.
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LTC Severity: The Southeastern Spike (AR)
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Avg Expense Paid 17,635 14,297 27,993 34,839 41,829 71,769
Avg Indemnity Paid 132,342 80,105 284,536 716,297 858,440 481,503
2000 2001 2002 2003 2004 2005
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LTC Severity: The Southeastern Spike (MS)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Avg Expense Paid 2 9,349 17,593 74,125 129,904 151,582
Avg Indemnity Paid 17,071 49,683 51,428 171,855 374,477 357,083
2000 2001 2002 2003 2004 2005
22
LTC Severity: The Southeastern Spike (TN)
-
50,000
100,000
150,000
200,000
250,000
Avg Expense Paid 8,314 9,837 14,624 46,219 47,063 68,900
Avg Indemnity Paid 39,677 39,110 36,840 194,172 205,171 235,161
2000 2001 2002 2003 2004 2005
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LTC Severity Trend (ALAE)
131 7483,782
7,376
13,616
18,946
25,719 24,444
28,947
34,675
52,754
-
10,000
20,000
30,000
40,000
50,000
60,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year Claim Closed
The average amount spent to defend a GL/PL claim has increased more than sevenfold in the past seven years from approximately
$7,400 to $52,800.