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Captive Reserving Strategies

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Presentation on theme: "Captive Reserving Strategies"— Presentation transcript:

1 Captive Reserving Strategies
Susan Beutel Senior Director, Claim & Litigation Counsel, Ascension Daniel Nash National Healthcare Practice Leader, Zurich North America Robert Bartolone National Director, Healthcare Claims, Zurich North America December 5, 2013

2 Purpose Reserves should be an accurate reflection of the value or exposure presented by a given set of claims. Accurate reserve valuation leads to appropriate pricing of reinsurance and the appropriate financial rating of captive. How does an reinsurer evaluate and set reserves? How does a captive evaluate and set reserves? When does an reinsurer evaluate and set reserves? When does a captive evaluate and set reserves? 12/5/2013

3 Reserve Evaluation-How
Risk Neutral Number (RNN) Reserve to our reasoned estimate of the most likely outcome if the case is tried to verdict. The RNN reflects an objective assessment of liability and damages and a realistic range of probable verdicts. RNN reflects the amount at which we should be neutral as to whether we settle or try the case to verdict. The risk neutral number equates to our indemnity reserve, but it is not our settlement target 12/5/2013

4 Reserve Evaluation-How

5 Reserve Evaluation-Case Study
Liability 56 yr old male admitted w/ complaints of chest pain (8 out of 10) subsequent to 5 hour stretch of doing yard work. No prior hx of cardiac problems and successfully passed a recent stress test; patient had several cardiac risk factors. Normal EKG; no cardiac enzyme test administered. Physician indicated that full cardiac workup was done in the notes. Given the patient’s symptoms, our ER nurse felt that cardiac enzyme test should have been administered but said nothing to the physician. Patient given “GI cocktail” which included pain meds and symptoms resolved; discharged an hour after arriving. Patient arrived home one half hour after discharge and suffered cardiac arrest and brain damage. Patient is bedridden and unable to speak. Patient is cared for in his home but needs 24 hour attendant care. 12/5/2013

6 Reserve Evaluation-Case Study
Plaintiff’s expert claims that the co-defendant physician fell below the SOC because he failed to complete a full cardiac work up and that the nurses should have gone up the chain of command to get one done. Our expert believes that the patient’s symptoms may have indicated that a cardiac enzyme test be done by the physician. She further indicated that our nurses could have gone up the chain of command given the patients symptoms, but could also have relied on the physician determination as to whether further testing was required. Plaintiff’s chance of success-60%. Apportionment as follows: Reinsured nurses 25% Co-defendant physician 75%. 12/5/2013

7 Reserve Evaluation-Case Study
The patient’s past medical bills: $2500; low, medium, high. Patient’s lost earnings: 56 yr old to Retire at 60, 65, and 67; Earning $55,000/yr at time of death. Low: 4 $55,000 = $220,000 Medium: 9 $55,000 = $495,000 High: 11 $55, % inflationary factor = $670,000 Patient’s spouse spent $10,000 on grief counseling for loss of consortium. Future Medicals: Life expectancy 5 to 10 years; Cost of care per year $100K to $350K. Low: 5 $100,000 = $500,000 Medium: 7.5 $200,000 = $1,500,000 High: 10 $350,000 = $3,500,000 Pain & Suffering: Verdicts for similar incident ranged from $1.5M to $6M. Low: $1.5M Medium: $2.5M High: $6M 12/5/2013

8 Reserve Evaluation-How

9 Reserve Evaluation-“Reality” Study from Captive Perspective
Ascension’s use of RNN is at present severity driven The “Zurich Tool” is used for high exposure cases: All cases over $750,000 Basket 1 cases targeted for early resolution via Communicate Openly Resolve Early (CORE) All cases going to our National Claims Committee Assists with evaluating damages from another perspective Clear identification of liability and damage issues All claim professionals and evaluators speaking the same language Focused review by National Claims Committee and direction on likely damages Claim professionals applying the same consistent approach to claims at threshold or below 12/5/2013

10 Reserve Evaluation-Captive Perspective No Caps + Co-Defendant Exposure

11 Reserve Timing-Reinsurer Perspective
Injury/severity driven statistical claim inception Injury Type Claim Status All other injuries Death Paralysis/Major Amputation Serious brain damage/Cognitive injury Incident $25 $100 $500 $1,000 Demand for Compensation $5,000 $10,000 $25,000 $50,000 Lawsuit $100,000 12/5/2013

12 Reserve Timing-Captive Perspective
Does Ascension use severity to set initial reserves? Based on Ascension’s work with High Reliability and our CORE program we target cases with severe injury but our actual reserve is based on multiple factors. Pros and cons of current placement of statistical reserves Initial reserve provides an opportunity to evaluate the injury and claim to determine if the care was appropriate and met the Standard of Care (SOC) Delays in discovery can impact attaining reserve early in the litigation process Does not take into account jurisdictional issues, attorney issues or the sympathy factor 12/5/2013

13 Reserve Timing-Captive Perspective
Pros and cons of severity driven statistical reserves Severity + high damages = high reserve Evaluates severity of injury while other factors impact total reserve: Damage caps or Patient Compensation Funds (PCF) Joint and several liability Apparent agency Contributory fault Punitive damages Jurisdiction Plaintiff’s counsel Expert opinions positive and negative 12/5/2013

14 Reserve Timing – Captive perspective
Injury/severity driven statistical claim inception Injury Type Claim Status All other injuries Death Paralysis/Major Amputation Serious brain damage/Cognitive injury Incident/ Basket 1 Early Resolution $100K Demand for Compensation $0-$15K $0-$25K $25K $50-$100K Lawsuit $35K $35-$100K 12/5/2013

15 Reserve Timing-Reinsurer Perspective
Specified Interval-Best Practices Initial reserves set within five (5) business days of receipt of the claim Initial reserves are based on the limited information received from the notice of loss or lawsuit All initial indemnity reserves converted to case-based reserves 180 days from receipt of the claim Where critical facts or information has not yet been obtained or verified, reasonable assumptions are appropriate, so long as they are clearly identified and adequately explained. Re-evaluate the claim exposure upon receipt of new information that potentially impacts the assessment of liability or damages. within 30 days of receipt of that information 12/5/2013

16 Reserve Timing-Captive Perspective
Specified Interval-Best Practices Reserves set on all claims, Notice of Intents (NOI) and suits upon notification by our Health Ministries to Ascension Reserves reviewed: 90 days after suit is filed, investigation findings 210 day, evaluate expert support 365 day, fully reserved unless significant change in case 3/31 and 9/30 reserve reviews for our actuaries Quarterly metrics on compliance with reserving including: Reserve notes Changes after 365 days for receipt of suit Changes of >25K prior to mediation or facilitation Weekly meetings with claims team reviewing all cases at the above time frames including the reserve Talking Points: What are Ascension’s best practices? How does Ascension assure compliance with best practices to assure consistency in reserve timing? 12/5/2013

17 Reserve Timing-Reinsurer Perspective
Avoiding Reserving Surprises-Predictive Modeling Predictive Modeling is used to evaluate underwriting, risk and claims exposure. For medical malpractice claims, predictive modeling can be used as follows: Data/Text mining for trends based on procedure & injury Data/Text mining for the potential to go into litigation Data/Text mining for high exposure claims * * * 12/5/2013

18 Reserve Timing-Text Mining
Process of extracting unstructured knowledge hidden in text fields Discovery of patterns and trends in the text (claim notes) Quantify the relationships and associations found in the text Use these quantifications of relationships and associations to predict an outcome (e.g. claim severity) The process quantifies and finds associations across all text and summarizes the results for further data analysis 12/5/2013

19 Reserve Timing-Text Mining Methodology Example
Original Claim Notes Document 1: life plan Document 2: had surgery Document 3: had emergency op Document 4: had life care Document 5: discharged Abbreviations: “op” defined as a synonym for “surgery”. Multi-word terms: “life” and “plan” defined as one single term. “life” and “care” are also defined as one single term. “life care” is synonym for “life plan”. Revised Claim Notes Document 1: life plan Document 2: had surgery Document 3: had emergency surgery Document 4: had life plan Document 5: discharged 12/5/2013

20 Reserve Timing-Text Mining Terms
Sample text terms used: life expectancy resuscitation ultrasound aneurysm nerve brachial cardiac arrest resuscitate airway sepsis life care plan infectious disease epidural respiratory disfigurement fetal distress dead neurological lost wage claim subdural hematoma cerebral palsy brain damage cardiac coronary anoxic delivery economic damage amputation severe aspiration pulmonary embolism renal failure spinal/spine unresponsive wrongful death fetus neuro placenta brain anesthesia permanent injury uterine rupture intubation cervical mrsa c-section decompression severity lumbar flesh eating bacteria meningitis seizure aortic paralysis burn 12/5/2013

21 Reserve Timing-Text Mining Example Results
Document 1: life plan Document 2: had surgery Document 3: had emergency surgery Document 4: had life plan Document 5: discharged Summarized Severity and Significant Predictor(s)  Claim Notes Claim Severity ($) Severity – Over $1MM Predictor: Relationship 3 doc1 $1,250,178 1 – YES Life plan doc2 $67,512 0 – NO Surgery doc3 $100,523 doc4 $1,532,549 doc5 $5,324 0 - NO No Life plan /Surgery Relationship 3 is the most significant variable for predicting whether a claim is over $1MM. The other variables identify relationships among the documents, but are not as useful predicting the target. 12/5/2013

22 Reserve Timing – Captive Perspective
Predictive modeling is a valuable tool for identifying claims with adverse exposure. Our reserving does take in some of the principles of predictive modeling and it is a valuable tool in recognizing those cases with significant adverse exposure. We have had success with using predictive modeling to resolve cases early and before much discovery is completed. 12/5/2013

23 Captive Reserving Strategies
Closing Remarks Questions 12/5/2013

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