1. Is it over yet? (Perspectives on the Med Mal Crisis) Robert J. Walling III, FCAS, MAAA 2006 CAS Spring Meeting May 9, 2006

3. From Where’s Perspective

4. Historical, Cyclical Swings Note 5 Year change!

5. Crisis Symptoms Insurer adverse reserve developments Insurer operating losses Coverage availability problems Coverage affordability problems

6. Industry Reserve Development

7. Widespread, but not Uniform

8. 2005 Reserve Developments for Insurers in “Crisis States”

9. Schedule P Held Loss & DCC Ratios for Insurers in “Crisis States”

11. Market Concentrations Measured using HHI (Herfindahl-Hirschman Index)  Sum the square of the market share of each firm in a market  The index can range from 0 to 10,000  0 = Perfect competition  10,000 = Perfect Monopoly  U.S. Department of Justice considers a result of less than 1,000 to be a competitive marketplace 1,000-1,800 to be a moderately concentrated marketplace 1,800 or greater to be a highly concentrated marketplace  Used by some regulators to determine rate regulation

13. Market Concentrations in “Crisis States”

14. A Call for Efficiency

15. A Call for Greater Efficiency The current system is woefully inefficient

17. Tort Reforms Impact on Efficiency Damage caps by themselves do not improve system efficiency Other elements of MICRA should help Some newer reforms may help too Attorney fee caps Birth Related Neurological Injury Funds (NICA) Prelitigation screening “I’m Sorry’ laws

18. I’m Sorry Laws Physicians want more communication Patients feel physicians are “hiding something” In most states, expressions of regret or empathy are admissible as evidence Lexington, KY VA Hospital “I’m Sorry” laws,  Enacted in CA, CO, FL, MA, OR, TN, TX, WA  AZ, ME and others are considering  Providers/staff can say “I’m sorry this happened to you”  CO only, “I’m sorry I did this” without admissibility

19. I’m Sorry Laws Insurers are:  Training providers on how to apologize (mandatory)  Coordinating with claims Initial results are significant  Reduced severities  Reduced loss adjustment expense  Reduced attorney involvement (CO: 2 lawsuits in 433 claims)  Improved patient satisfaction  In many cases, much improved efficiency

20. Impact of “I’m Sorry” Laws Focus on claims <$35,000 Company’s can match apology with aggressive claims settlement strategy (e.g. COPIC) Increase efficiency at all costs (including higher pure loss severity) Reduces ALAE on small claims 35-65% (3.5%-6.0% cost reduction overall) Actually increases small claimant net damages

21. Survey of “I’m Sorry” Laws by State