Medical Malpractice Liability Current Reserving Challenges for Captives
Medical Malpractice Liability Current Reserving Challenges for Captives and Self Insurers Alice Edmondson (CASCO)
Current Reserving Challenges Program Structure Client Influences Outside Influences
Program Structure Challenges Expanded retentions from hard markets ØReactivation of captives ØDramatic increases in per claim limits ØDisappearance of shared aggregates
Program Structure Challenges Coverage complexities ØVarying effective and retro dates ØCoverage and limits differences ØOccurrence and claims made mixtures
Program Structure Suggestions Create a program structure matrix first! ØAll coverages (HPL, IPL, GL, PPL, …) ØCoverage basis (occ, claims made, …) ØEffective and retro dates ØLimits and whether LAE is inside ØVariations by covered entity ØAgreement by client, captive mgr, broker
Program Structure – Sample Matrix Covered Entity Line of Coverage Basis Eff / Retro Dates Per Claim Limit Annual Aggregate Hospital A HPL Claims Made 1/1/98 1/1/92 $ 2 mil ( + LAE) $ 6 mil ( + LAE) Hospital A GL Occ 1/1/98 $ 1 mil ( incl. LAE) $ 3 mil ( incl. LAE) Practice Plan B PPL Claims Made 1/1/98 Various $ 1 mil ( + LAE) $ 4 mil ( + LAE) Practice Plan B IPL Claims Made 1/1/98 1/1/92 $ 1 mil ( + LAE)
Program Structure Suggestions Don’t over-simplify projection process! ØDo occurrence and report year analysis ØStart refined, aggregate later ØEmphasize good increased limits analysis
Client Influences - Challenges More risk than ever ØNursing and physician staff shortages ØExpanded corporate entity exposure ØNew procedures and ancillary activities ØClient unawareness of own exposures
Client Influences - Challenges Management needs /expectations ØDistorted CFO expectations ØContinued cost pressure on providers ØProblems created by huge P/L swings
Client Influences - Challenges Data problems ØInconsistent / incomplete exposure ØPhysician specialty “downgrading” ØIncomplete loss and LAE reporting ØVarious claim histories / TPAs
Client Influences Suggestions Communicate early and often ØInitiate a “what’s happening” discussion ØBe a pest -- don’t accept incomplete or questionable data ØProvide early warning of bad news
Client Influences Suggestions Reconcile claims and financial data ASAP ØLarge claims paid after valuation date ØIncomplete recording of LAE ØDon’t accept a big discrepancy!
Client Influences Suggestions Consider enhanced risk factors ØExplicit exposure values ØPercentage loads ØUsing appropriate conservatism at key judgment points
Outside Influences Challenges Claim severity ØSignificant upward trends recently ØDeteriorating venues ØClaim reserving reactions
Outside Influences Challenges Other Factors ØNursing home liability problems ØExisting and possible future legislation
Outside Influences Suggestions Amass good information ØComprehensive claims database ØRelevant industry data ØRead and listen a lot!
Outside Influences Suggestions Don’t ignore trends but Don’t over-react!
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