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The Medical Professional Marketplace and The Buyer’s Response to It Jack Jensen HealthCare...
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Transcript of The Medical Professional Marketplace and The Buyer’s Response to It Jack Jensen HealthCare...
The Medical ProfessionalMarketplace 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
Source: A.M. Best’s
100105110115120125130135140145150155
1997 1998 1999 2000 2001
Medical Malpractice
All Lines
Medical Malpractice Combined Ratio Continues to Climb
115 11
8
129
118
115
132
109 11
2
136
118
116
115
130 13
4
153
108 11
0
131
102
93
103
90
100
110
120
130
140
Wo
rke
rsC
om
pe
nsa
tio
n
Co
mm
erc
ial
Pa
cka
ge
s
Ge
ne
ral
Lia
bil
ity
Co
mm
erc
ial
Au
to
Me
dic
al
Ma
lpra
ctic
e
Pro
pe
rty
Inla
nd
Ma
rin
e
1999 2000 2001 (est.) Data Source: A.M. Best Company
Combined Ratios by Coverage Line
-2
-1.5
-1
-0.5
0
0.5
$ in
mill
ions
Source: Conning & Company
200
0
(400)
(600)
(800)
(200)
Estimated Medical Malpractice Reserve Position
All Years Total: $(1.7) billion
Source: Jury Verdict Research
U.S. Median Medical Liability Awards and Settlements
0100200300400500600700800900
1,000
1993 1994 1995 1996 1997 1998 1999 2000
$ in
Tho
usan
ds
Settlements
Awards
Medical Malpractice Claim Severity is Increasing
$1,000,000
$500,000
Source: Jury Verdict Research & West Law
Sample Large Awards
$27,570,327
$23,530,746
$19,275,466
$18,924,000
$15,700,000
$15,317,000
$15,000,000
$14,460,000
$12,381,670
$11,500,000
$10,800,000
$10,600,000
1997
Queens County, NY
Boone County, KY
Queens County, NY
Dade County, FL
LA County, CA
Oakland County, MI
Philadelphia County, PA
Cuyahoga County, OH
US District, HI
Kings County, NY
Cook County, IL
Cook County, IL
Medical Malpractice Severity is Increasing
Source: Jury Verdict Research
Sample Large Awards:
$269,000,000
$108,000,000
$100,000,000
$75,000,000
$60,686,150
$55,439,270
$49,594,684
$41,444,531
$32,676,410
$31,100,000
$30,000,000
$23,500,000
2000-2001
Dallas County, TX
Bronx County, NY
Philadelphia County, PA
Nassau County, NY
Los Angeles County, CA
Cook County, IL
Philadelphia County, PA
Kings County, NY
TX
Escambia County, FL
New Haven, CT
Cuyahoga County, OH
Medical Malpractice Severity is Increasing
Medical Malpractice Premiums “In Play”
St. Paul $ 534 million
PHICO 135
Frontier 59
Travelers 28
MIIX 185
SCPIE 151
TIG 100
$1.192 billion of premiums in need of a new home
Institutional Provider Markets
United States Bermuda EuropeanAIG AWAC SwissReAce Endurance HannoverReArch XL London Market
Berkley StarrChubb AceCNAERC
One BeaconZurich
Axis
Green - CAT Excess OnlyRed - New Markets
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
Chubb
AIG
BCS (limited)
Gone
TIG
CNA
Steadfast
St. Paul
Farmers
Some PIAA’s
Managed Care E&OAverage Per Enrollee Per Year (PEPY)
$0.00
$1.00
$2.00
$3.00
By No. of Enrollees
Co
st P
EP
Y
2000 2001 2002
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
25,000- 350,001- 1,000,001- 5,000,001
Managed Care E&O
Average Retentions Graph
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
By No. of Enrollees
Re
ten
tio
ns
2000 2001 2002
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
25,000-350,000
350,001-1,000,000
1,000,001-5,000,000
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
15%
98%
112%
17%
93%
110%
19%
92%
111%
22%
93%
115%
22%
92%
113%
21%
103%
124%
22%
116%
138%
0%
20%
40%
60%
80%
100%
120%
140%
1995 1996 1997 1998 1999 2000 2001
Calendar Year
Comparison of Loss, Underwriting Expense & Combined Ratios
Underwriting Expense Loss Combined
Medical Malpractice – Physician Markets
23.3%
19.3%20.2%
16.1%
12.3%
4.0%
-9.9%-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1995 1996 1997 1998 1999 2000 2001
Calendar Year
Net Income as a Percent of Premiums
Physician ResponseI. 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
11A
2
3
4