Medical Professional Liability A Financial Overview and Reserve Considerations

Transcription

1 Medical Professional Liability A Financial Overview and Reserve Considerations Casualty Loss Reserve Seminar Denver, Colorado September 5-7, 2012 Charles W. Mitchell, FCAS, MAAA Consulting Actuary chuck.mitchell@milliman.com (262) September 6, 2012 Overview of Presentation Background Medical Professional Liability (MPL) Risk Historical Overview of MPL Insurance Market Statutory Insurance Market Financials MPL Reserves Current State of MPL Impact of PPACA 2 Background on MPL Risk 3

2 Overview of Presentation Estimated U.S. Healthcare Costs -$2.5 Trillion Estimated U.S. MPL Costs - $30 Billion Cost of Defensive Medicine Lawyer funded studies - $2.5 to $5 Billion J. William Thomas, Muskie School of Public Policy - $13 Billion Amitabh Chandra of Harvard University - $60 billion Health provider funded studies -$100 to $300 Billion Jackson Healthcare -$650 to $850 Billion 4 Distribution of Healthcare Spending Total U.S. Expenditures Private Health Insurance 33% Medicare 20% Out of Pocket 12% MPL Costs 1% Other 19% Medicaid 15% Sources: Milliman analysis of National Health Expenditures (cms.gov) Milliman analysis of P&C insurance statutory data as provided by SNL Financial 5 MPL Insurance Market 6

3 Direct Written Premium by Line of Business Property & Casualty All Other 26% National Market Homeowners 15% Medical Professional Liability 2% Workers' Compensation 9% General Liability 9% Commercial Auto Liability 5% Personal Auto Liability 34% Milliman analysis of P&C insurance statutory data as provided by SNL Financial 7 National Market Market Share: Commercial Carriers vs. Specialty Writers 2011 Direct Written MPL Premium Non-Publicly Traded Specialty Writers Non-Publicly Traded Specialty Writers: Start-Up Programs Publicly Traded Specialty Writers Multi-Line Commercial Writers Milliman analysis of P&C insurance statutory data as provided by SNL Financial 8 Background on Medical Professional Liability Distribution of MPL Costs Milliman Health Reform Briefing Paper Retooling Medical Professional Liability; September

4 Background on Medical Professional Liability Commercial Insurance or Self-Insurance Shift from independent physician practice to health system employment 10 Background on Medical Professional Liability Variability in MPL Insurance Rates Example Internal Medicine Rates by Territory ($000) $40 $38 $35 $30 $32 $33 $25 $20 $17 $20 $22 $24 $26 $26 $15 $13 $14 $15 $10 $7 $9 $10 $5 $3 $4 $0 Medical Liability Monitor s Annual Rate Survey Issue; October 2009 $1 Million / $3 Million Limits for Mature Claims-Made Coverage 11 Background on Medical Professional Liability Variability in MPL Insurance Rates Relativities by Specialty Relativity Class Example Specialties within Class to 1C 1A Dermatology - No Surgery B Geriatrics - No Surgery C Family/General Practice - No Surgery A Internal Medicine - No Surgery B Anesthesiology C Family/General Practice - Minor Surgery D Radiology Diagnostic - Minor Surgery E Internal Medicine - Minor Surgery A Gastroenterology Surgery B Family/General Practice Surgery A Emergency Medicine - No Major Surgery B General Surgery A Head and Neck Surgery B Abdominal Surgery OB/GYN Surgery Traumatic Surgery Neurology Surgery 6.26 Medical Protective Company s January 1, 2008 Rate Filing in Ohio 12

5 Historical Overview of MPL Insurance Markets 13 Historical Overview of MPL Insurance Market Deep Underwriting Cycles Three Insurance Crises Affordability/Availability 1970 s crisis brought us the bed-pan mutuals 1980 s crisis brought us the claims-made coverage form 2000 s crisis brought us explosion of RRG start-ups (mostly RRGs) Expansion and Contraction of Commercial Market Insolvencies and M&A Activity St. Paul Withdrawal in Statutory MPL Insurance Financials 15

6 National Market $14 Growth in Direct Written MPL Premium ($Billions) 16% Decrease $12 $10 $8 $6 $4 $2 $ Sources: Milliman analysis of A.M. Best Aggregates & Averages P&C Milliman analysis of P&C insurance statutory data as provided by SNL Financial 16 National Market Broader Perspective on Rates Historical MPL Market Average Rate Changes Relative to 2005 Rate Levels Q Q Q Q Q Q Q A.M. Best Market Scout CIAB Statutory MLM Overall Average 17 National Market 180% Historical Underwriting Results MPL Combined Ratio after Dividends 160% 140% 120% 100% 80% 60% 40% 20% 0% Est. Sources: Milliman analysis of A.M. Best Aggregates & Averages P&C Milliman analysis of P&C insurance statutory data as provided by SNL Financial 2012 estimated from A.M. Best Review & Preview; February

7 MPL Specialty Writers Closed Claim Frequency per Physician Countrywide, Base Year Sources: Milliman analysis of AMA Physician Characteristics and Distribution in the U.S., multiple editions Milliman analysis of National Practitioner Data Bank Public Use Data File, December 31, MPL Specialty Writers $400,000 $350,000 $300,000 Closed Claim Severities Countrywide 29% Increase 2% Increase $250,000 $200,000 $150,000 $100,000 $50,000 $ Milliman analysis of National Practitioner Data Bank Public Use Data File, December 31, MPL Specialty Writers Combined Ratio after Dividends 100% 90% 80% 70% 60% 84% 6% 18% 77% 5% 18% 79% 79% 5% 7% 19% 21% 83% 7% 21% 50% 28% 40% 26% 30% 27% 29% 30% 20% 10% 32% 28% 25% 25% 26% 0% Loss LAE Underwriting Expense Policyholder Dividend Milliman analysis of P&C insurance statutory data as provided by SNL Financial 21

8 MPL Specialty Writers Net Investment Income to Average Invested Assets Milliman analysis of P&C insurance statutory data as provided by SNL Financial 22 MPL Specialty Writers 3-Year Treasury Yield Curve Rates as of December 31 14% 12% 10% 8% Long Term Avg = 6.1% 6% 4% 2% Five Year Avg = 1.4% 0% Daily Treasury Yield Curve Rates as published by the U.S. Treasury 23 MPL Reserves 24

9 MPL Reserves National Statutory Market A.M. Best s Aggregates and Averages 25 MPL Reserves Composite of MPL Specialty Writers Medical Liability Monitor, July, MPL Reserves Continued sizable favorable reserve development Attracting attention of IRS Fair and reasonable standard Suggestion that median is appropriate target Courts one reasonable estimate is not more reasonable than another reasonable estimate Explicit risk margins not allowed 27

10 MPL Reserves 28 MPL Reserves 29 Current State of MPL 30

11 Current State of MPL Strong calendar year underwriting results of late 2011 is sixth consecutive year of underwriting profit. Pricing and coverage year results deteriorating Investment results will continue to be modest Strong capitalization levels Increased competition Policyholder dividends Continued M&A activity 31 Current State of MPL Modest signs of claim frequency increases ALAE costs have exceeded loss costs last three years 32 Possibly Adverse Impact of PPACA on MPL More demand for healthcare services Perhaps higher expectation on the part of patients Mid-levels / Physician extenders Vicarious liability Electronic Medical Records (new causes of action) More co-defendants, clash claims, shock losses, limits of coverage Will pressure on providers reimbursement exacerbate physician shortage 33

12 Possibly Favorable More preventative care / Less acute care Holistic approach / Coordinated care Electronic Medical Records Greater focus on results (quality versus quantity of care) Other Impacts Shift of exposure from specialists to primary care Changes in claims litigation (new causes of action or defense strategies) Never Events Impact of PPACA on MPL 34 Other Considerations 35 Other Considerations Accompanying Oral Discussion This document is not complete without the accompanying oral discussion and explanation of the underlying information and concepts as well as any interpretational limitations. Limited Distribution This document should not be distributed, disclosed or otherwise furnished, in whole or in part, without the express written consent of Milliman. Data Reliance We have relied upon data and other background information prepared by others, as documented throughout this presentation, without audit or independent verification. We have performed a limited review of the data for reasonableness and consistency and have not found material defects in the data. If there are material defects in the data, it is possible that they would be uncovered by a detailed, systematic review and comparison of the data to search for data values that are questionable or relationships that are materially inconsistent. Such a review was beyond the scope of our assignment. 36