Transcript Physician`s Professional Liability_03-12_815AM - PLUSweb

Physician's Professional
Liability: Can We Avoid the
Bust?
• MODERATOR: David Spiegler, FCAS, FCA, MAAA,
Executive Vice President & Chief Actuary,
BMS Intermediaries, Inc.
• Susan Chmieleski, APRN, FASHRM, JD,
Vice President & Director,
Darwin Professional Underwriters, Inc.
• Jonathan D. Gale, Underwriting Director,
Catlin Bermuda
• Michael Severyn, Esq., Regional VP, Claims,
ProAssurance
• Mark T. Walthour, CPCU, Senior Vice President,
Underwriting, Medical Protective
Quick Overview
• “No Basis for High Insurance Rates:
An Analysis of the 15 Largest Medical
Malpractice Insurers 2006 Financial
Statements”
• “Medical Malpractice: Another
Perspective on the Financial Results of
the Top 15 Insurers”
Quick Overview
(continued)
• Much of “No Basis” is correct – med
mal results have been very good for
the past several years
• “Another Perspective” tries to put
those results in context – the current
very good results followed an
extended period of very bad results
Quick Overview
(continued)
• The 15 insurers had a combined ratio
of about 97.5% for the ten years
ending 12/31/06, with the 2004-2006
years at about 70%.
• Those same 15 insurers had a
combined ratio of about 140% for the
ten years ending 12/31/00, with the
1998-2000 years at about 167%.
Quick Overview
(continued)
• Was the “medical malpractice crisis” really a
ruse created by the insurance industry to
push unneeded rate increases and tort
reform?
OR
• Was the insurance industry’s response to
the “medical malpractice crisis” reasonable
given the results they were seeing?
Quick Overview
(continued)
• The insurance industry is cyclical
• 1998-2000, BUST
• 2004-2006, BOOM
• Can We Avoid The Bust?
Primary Carrier Perspective
Mark Walthour
Underwriting Leader
Medical Protective
Company Optimism…
are Companies
“Betting the Farm?”
Key factors in Company Performance

Frequency and Severity trends…

New exposures in the healthcare delivery
system…

Company Strategy
Historical Look at Industry
UW Performance
Source: A.M Best
Severity Trends Consistent
NPDB Total Losses Paid
300
250
3.0
200
2.5
2.0
150
1.5
100
1.0
50
0.5
Total Losses Paid
06
3Q
07
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
19
92
0
91
0.0
19
Total Loss Paid ($B)
3.5
Avg. Loss Severity 1M Cap
Avg. Paid Loss Severity (000's)
4.0
Frequency Improving…Short Term?
NPDB Claim Counts
300
14,000
250
12,000
200
8,000
150
6,000
100
4,000
50
2,000
# of Claims Per Yr.
07
3Q
06
20
05
20
04
03
20
20
02
20
01
20
00
99
20
19
98
19
97
19
96
95
19
19
94
19
93
19
19
92
0
91
0
19
Counts
10,000
Avg. Loss Severity 1M Cap
Avg. Paid Loss Severity (000's)
16,000
New exposures have taken
their toll in the past……
• Did the Industry understand Nursing Home
exposures in the 80’s and 90’s?
• Were underwriters on top of Laparoscopic
procedures in the 1980’s?
• Do we understand the risks of Cosmetic
Surgery exposures today?
• Mass Torts – more on the way?
• Technology continues to raise the Standard of
Care..
Healthcare Providers:
Reimbursements Continue
to Squeeze Providers
Hospital Payment Shortfalls
•Medicare/Medicaid
paying 90¢ per $1
$5
$0
Billions
-$5
Medicare
-$10
-$15
Medicaid
-$20
-$25
Other Government
-$30
97
98
99
00
01
02
03
04
05
• HCO shortfall $25
Billion
• Uninsured 15.9%
population … 5.6%
hospital costs
• Pressure on
Private Insurance
to make up the
difference (130% of
costs)
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals.
AHA and AMA Battling 2007
Medicare/Medicaid Reductions
Healthcare Providers: Responding to
Reimbursements – New Risks to
Address
Number of Freestanding Ambulatory Care Surgery Centers
Ambulatory Care Surgery Centers
5,600
5,095
5,197
2005
2006
4,601
4,200
2,800
2,754
2,864
1998
2000
3,508
3,570
2001
2002
3,836
2,425
1,400
0
1996
Source: Verispan, 2006 Guide to Healthcare Market Segments, 2006.
2003
2004
Healthcare Providers: Responding
to Reimbursements –
New Risks to Address
Percent of Outpatient Surgeries by Facility Type, 1981 – 2005
Percent of Outpatient Surgeries
100%
Physician Offices,
16%
80%
Freestanding
Facilities, 37%
60%
40%
Hospital-owned
Facilities, 47%
20%
0%
81
83
85
87
89
91
93
95
97
Source: Verispan, Diagnostic Imaging Center Profiling Solution, 2004.
*2005 values are estimated based upon current trends.
99
01
03
05*
Company Strategy Recent Premium Trends
• Big ‘growers’ tend to be the start-ups while
the ‘shrinkers’ are often the most
established (first 9 months of 07)
Growers >=5% (31)
Shrinkers <=5% (41)
• Dividends, Surplus, and Reserve Releases
Increasing
Key Performance Factors
for the Future…
• Company Optimism – “betting the farm”…
 Frequency trends
 UW/Pricing discipline – new exposures
 Growth Strategy
• New Players vs. Established Players….
• Reinsurance Support
• Claims - environmental changes
Claims Perspective
Michael Severyn, Esq.
Regional Vice President-Claims
ProAssurance Professional Liability
Group
PROPOSITION #1

Looking at claim trends, the insurance
industry’s response to the medical
malpractice crisis was reasonable given
results that were seen in prior years
A Few Basic Truths
• Truth #1: Losses drive premiums:


Losses include not only indemnity
payments but the costs of defending each
and every claim, whether it results in an
indemnity payment, defense verdict or
dismissal of the claim
Defense costs add up and can equal or
exceed loss payments or policy limits
A Few Basic Truths
• Truth #2: The amount of premium
collected in a given year will have to
pay losses 3 to 5 years down the road
• Truth #3: Insurance is perhaps the
only product that is sold today without
a certain knowledge of its ultimate cost
ALAE TRENDS
SNAPSHOT: Average ALAE per claim
$57,779
•Angoff
studies do not
include these
paid ALAE
amounts
$49,246
$45,534
$20,822
1985
1997
2001
2006
INDEMNITY TRENDS
SNAPSHOT: Average Indemnity per claim
$337,901
$340,769
$279,932
•Alarming
increase shows
up in 1997
$160,842
1985
1997
2001
2006
SEVERITY TRENDS
SNAPSHOT: Claims with over $250,000 loss payments
1,095
861
857
1997
2001
•Another
spike
in 1997
222
1985
2006
IN HINDSIGHT
• When you look at claims data over the
years, the insurance industry’s
response to the medical malpractice
crisis years was reasonable.
THE ROLE OF
TORT REFORM
• Tort Reform efforts were energized in
the 1990’s
• Tort reform with non-economic
damage caps



Reduces premiums by 17%
Reduces judgment amounts
Increase the number of physicians
• Especially in rural areas
TORT REFORM FACES
UNCERTAIN TIMES
• Tort Reform is under attack in virtually
every state
• 2008 is an election year


Neither Democratic candidate supports
non-economic damage caps
Republican control is no guarantee of tort
reform
SEVERITY TRENDS
Overall claims frequency is down in most
states, even those without tort reform.
The National Practitioner Data Bank shows a
decline in claims from 2001 to 2005.
16,669
15,289
15,304
14,348
14,034
2001
2002
2003
2004
2005
EMERGING
CLAIM TRENDS
• Claims involving physician extenders


Use of physician extenders is growing
Physicians are being held responsible for
the acts of their extenders
• Electronic records


Improper release of records
A physician or assistant may not review
all the available records
EMERGING
CLAIM TRENDS
• Claims involving patient hand-offs
between the patient’s primary care
physician and hospitalists

Lack of communication can lead to a
breakdown in coordination of care
EMERGING
CLAIM TRENDS
• Information overload


Black box warnings on medications
require follow-up if there are product
recalls
Medication prescribed by one physician
may be contraindicated with medication
prescribed by another physician
HOW WILL WE
RESPOND?
• We must maintain rational pricing

We don’t get “do overs”
• Premiums collected each year will be used to
defend and pay for claims well into the future
• Falling short requires us to “pay the piper” in
some fashion

Tort Reform is not a sure thing
• Most state supreme courts have yet to rule
• Average indemnity payments will go up if Tort
Reforms are struck down
HOW WILL WE
RESPOND?
• We must maintain rational pricing

ALAE paid on files is increasing
• Hourly rates for experts, attorneys and
litigation support almost never go down

Average indemnity payments are
increasing
• So far, a decline in frequency is offsetting this
trend
Reinsurer Perspective
Jonathan Gale
Underwriting Director
Catlin Bermuda
Reinsurer Perspective
Medical Malpractice Market
Place
• Specialty Market -circa $7billion or 70% of insurance
buying market with combined ratio of 97% in 06 and
probably improving in 07
• Predominantly focused on physicians
• Provider owned with blend of provider and
insurance management expertise with heavy
emphasis on risk management/ loss mitigation/local
underwriting/local claims management
• Most companies after several poor years have two +
years of good profitability with a strong out look
(except NY)
Reinsurer Perspective
Medical Malpractice Market
Place (Cont’d)
• Most have Adequate Rates and just as importantly
Adequate Reserves (except NY) – reserving feeds into
pricing and caution over reserving levels is currently
keeping pricing sensible
• Competitive position strong for the top 25 or so
companies - Dominance in home market and less interest
in new states and new products (as in previous softening
market)
• Generally not interested in market share strategies
• Independent – Given results and flattening rates we are
likely to see more acquisitions particularly of RRGs and
smaller companies without the scale to compete
Reinsurer Perspective
Medical Malpractice Market
Place
•
Commercial Market - circa $3 billion or 30% of traditional market with
combined ratio of 77% in 06 and probably improving in 07
•
Predominantly focused on Institutional business
•
Dominated by 3 players – almost 70% of market
•
Several years of high profits are causing a rapidly softening market
particularly for excess HPL and has been for 2 years
•
Reinsurers target both Specialist and Commercial but we only write
Specialty








Longer term relationships
Commitment to adequate rates and reserves
Transparency of data and access to data
Access to providers in all aspects of operation
Focus on claims improvement/ patient safety and better loss outcomes
Focus on local Claims Management and Underwriting
Not market share driven
Low cost i.e. generally no retail agent and not for profit motive makes it very difficult to compete
with
Reinsurer Perspective
of Primary Loss Trends
•
Primary Loss Trends
•
Frequency generally declining or flat nationwide (no really good explanation
for non Tort Reform States)
•
Severity generally increasing albeit at a slower rate (never stopped increasing)
•
ALAE generally increasing (never stopped increasing) and even then we have
more examples of Defense Attorneys becoming Plaintiff Attorneys
•
Closed without indemnity ratios holding up around 80% of all claims reported
•
More examples of extreme verdicts ($216m in Florida in 06 / $38m in
Connecticut in February 08 and plenty in between)
•
More examples of mass torts or so called Batch or Systemic Claims
•
Tort Reform measures under attack e.g. Florida/ Illinois
•
No specific type of loss trend emerging – excess reinsurers still vulnerable to
heavier surgical classes particularly OB/GYN and ED
Reinsurer Perspective
of Cedant Buying Trends
• Increasingly sophisticated Reinsurance Brokers
providing extensive modeling work in addition to placing
programs in the worldwide reinsurance marketplace
• Greater willingness to assume risk due to growth in PHS
and greater confidence in short term future loss trends –
manifests in higher retentions and more co reinsurance
• Greater interest in the Holy Grail of reinsurance i.e.
aggregate stop loss particularly as retentions increase
and modeling reveals significantly increased levels of risk
being assumed at higher return periods
• Greater interest in Catastrophe Products i.e. Clash/ ECO/
XPL/ Systemic – more concern over ceding the infrequent
extreme event than attritional expected loss
Reinsurer Perspective
12 Year Loss for Specialty Company
trended/ developed/ exposure
adjusted
Ultimate Claims Cost to the Layer
18,000,000
CL ultimate adjusted for infl & exposure
BF ultimate adjusted for infl & exposure
16,000,000
Loss Pick
14,000,000
Loss to the layer
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
1995
1996
1997
1998
1999
2000
2001
Year
2002
2003
2004
2005
2006
2007
Current Reinsurance Market
Products
•
Working layer or primary excess of loss - Still a vibrant market for
•
Excess Cession - layers still profitable but appetite from reinsurance market is
working layer in Bermuda/ Lloyd’s and US domestic marketplace but will come
under strain in fairly short order given trend and rate outlook
mixed
•
Clash/ ECO/ XPL (bad faith covers) – again mixed appetite and clients
buying habits are not uniform with certain companies buying up to $30m+ and
other buying less than $2m

We view this risk similar to the way we view Windstorm in the Gulf or
Earthquakes in California i.e. infrequent but potentially disastrous

Working with brokers to mutualise multi company exposures on our balance
sheet in order to get some uniformity in buying habits and create an
increased market
•
Aggregate Stop Loss – As mentioned previously this covers all eventualities
but reinsurers are reluctant to provide due to moral hazard and accumulation over
multiple years. Particularly valuable as retentions increase
•
Batch Cover / Dual Trigger - Increasing retention is good on paper on an expected
basis but can be life threatening if you are hit with a mass tort or non-modeled peril
Reinsurer Issues and Cycle
Management
•
Disconnect between primary trend and excess of loss trend –
increasing severity = increasing frequency of excess losses i.e.
we have both increased frequency and severity and we pick up
the expenses which are increasing too
•
Rates are for the most part holding but if they reduce
substantially or even marginally over time we go from a virtuous
circle of reducing losses and rising rates to a vicious circle of
rising losses and reducing rates – need to watch credits and off
balance factor as well
•
Experienced Underwriters/ Actuaries are few and far between –
difficult to attract and unfortunately also to retain
•
Technical pricing with actuarial/ underwriting/ claims
involvement critical – open plan environment conducive to
close co operation and communication
Reinsurer Issues and Cycle
Management
• Price monitoring and Adequacy monitoring – in place for
almost 10 years and gives historic perspective per
individual treaty and in the aggregate for the portfolio
relative to floor pricing
• Using the more recent accident years more in pricing and
paying very careful attention to Cedant anecdotes of
increased trend or aberrational trend
• No multi year non-cancellable treaties
• Use of external benchmarks – e.g. AON/
Conning/Tillinghast/ Milliman to benchmark Company
performance against market experience
Transparency /
Accountability / Technology
Susan Chmieleski, APRN, CPHRM,
FASHRM, JD
Vice President
Darwin Professional Underwriters
Emerging and Evolving
Liability Issues
• Pay for performance
• Healthcare delivery models
• JCAHO and other standards
Pay for Performance
• CMS final rule on hospital acquired
conditions
• Private insurers
• Individual state agreements
Health Care Delivery
Models
• Hospital based practice

Hospitalists, Intensivists, Deliverists
• Urgent care
• Telemedicine
• Physician-owned surgical specialty
hospitals
JCAHO and Other
Standards
• Surgical site marking
• Medical staff standards
• Office-based surgery
JCAHO and Other
Standards
• Informed consent
• Disclosure and apology
• Incident / Occurrence reporting