Financial results for 2013 are strong for specialty writers of lawyers professional liability (LPL), with operating ratios at the lowest levels in more than 10 years, insurers returning 30% of their net income to policyholders in the form of dividends, and an all-time high in industry surplus, among other measures.
This issue of P&C Perspectives, authored by Susan Forray and Andy Kline, analyzes the financial results of a composite of 14 specialty writers of LPL coverage for solo practitioners and small firms. The article examines operating results, reserve releases, claim frequency, capitalization, and net retentions.
California’s Medical Injury Compensation Reform Act (MICRA) has been the blueprint used by states to reform their medical professional liability (MPL) markets since its enactment in 1976. In part, the landmark legislation helps reduce MPL premiums and increase the availability of coverage for physicians by capping noneconomic damages at $250,000.
A pending ballot initiative in California now aims to increase the cap. In this Best’s Review article by Milliman’s Susan Forray and Stephen Koca, the consultants examine the financial effects an increased cap can have on the state’s MPL industry. They also consider how other states with similar tort reforms may come into the crosshairs.
Here is an excerpt:
Three dozen states have adopted some form of a cap on damages over the years, although in 12 of these states the cap has been overturned or otherwise invalidated, and remains overturned in most of these cases. And while these caps are often less effective than California’s, either because of higher limits or exceptions, they followed MICRA’s lead and reduced costs in many MPL markets.
Texas is perhaps the best example of a state whose MPL premium has been reduced by the effects of a cap on noneconomic damages. MPL premiums in Texas had been in close step with national trends until 2003, the year reforms were enacted in the state. Premiums declined relative to national levels a year after reforms were enacted, and continued to moderate for several years.
While nationwide premium per physician is approximately 25% less than in 2003, MPL premiums in Texas have fallen by more than 60% since that time—a clear demonstration of the impact that reforms have had on the MPL costs in the state, and a warning sign of potential increases that could be seen in California if the cap is increased.
For more perspective on the impact a higher cap would have on MPL claims, read Stephen’s article “The end of an era for noneconomic caps?”
In recent legislative proposals in Florida and Georgia, lawmakers have sought to establish a patient compensation system (PCS) as an alternative to litigation for compensating patients with injuries that could have been avoided under alternative healthcare (referred to as “medical injuries” within the legislation).
Proponents say offering a PCS as an alternative to litigation could lead to faster outcomes with claims. Advocates claim that faster claim resolutions and less attorney involvement would ultimately reduce overall costs, while providing access to compensation for more patients. They also argue that this system would benefit claimants with minor injuries, who are frequently excluded under the current system, because their claims generally do not result in the kind of large monetary awards that make taking a medical professional liability (MPL) case cost-effective for plaintiff attorneys.
Can PCSs really provide the many benefits, in cost savings, fairness, greater access, and efficiencies, that their proponents claim? This article by Christine Fleming, Eric Wunder, and Susan Forray offers some perspective.
This article was originally published in Inside Medical Liability, First Quarter 2014.
For more than 30 years, reserve adequacy for the property and casualty (P&C) insurance industry has been highly cyclical, alternating between periods of adverse and favorable reserve development. No one knows for certain what factor or factors cause these swings. It’s commonly thought that internal industry influences—such as claims department practices, changes in pricing, or management decisions—are potential sources. Although we expect these elements do play a role, there’s no evidence to suggest they are the primary reason for the reserving cycle.
What few have considered, on the other hand, is the possibility that common methods used by actuaries to determine appropriate reserves may themselves be an important contributing factor to movements in the reserving cycle. In their article “Actuaries and reserve adequacy,” Milliman’s Susan Forray and Zachary Ballweg assess the potentially cyclical behavior of various actuarial reserving methods.
This article originally appeared in the March/April 2014 issue of Contingencies.
It is well-known that the carried reserve adequacy of the property and casualty industry, as a whole, varies significantly across the market cycle. Much less understood is the extent to which this may stem, in part, from actuarial reserving methods. If a material relation exists, any cyclicality in actuarial reserving methods could lead to overestimated or underestimated reserves, thus exacerbating the market cycle.
This paper authored by Susan Forray and Zachary Ballweg assesses the potentially cyclical behavior of various actuarial reserving methods. These include the paid and incurred (i.e., paid plus case) chain ladder, Berquist-Sherman, and Munich Chain Ladder methods.
Originally published in the Casualty Actuarial Society E-Forum, Fall 2013.
Specialty writers of lawyers professional liability (LPL) insurance exhibited strong financial results in 2012. The operating ratio for the LPL industry was about 77%, an eight-point improvement over 2010 and 2011. Again insurers were able to release reserves, and a large portion of the releases were returned as policyholder dividends. The industry’s surplus also reached an all-time high, having increased 7% over 2011.
To understand the state of the LPL industry today, Milliman’s Susan Forray and Shaun Cullinane performed an analysis of the financial results of a composite of the 14 specialty writers of LPL coverage for solo practitioners and small groups.
Here is an excerpt from their analysis:
The industry’s strong operating results in 2012 were the result of an increase in reserve releases as well as an apparent improvement in the 2012 coverage year itself. However, this should be put in the context of the preceding years. The operating results of the period 2008 to 2011 were worse than those experienced in the prior 15 years—even worse than during the previous soft market of the late 1990s through 2001 (see Figure 1). The favorable operating results of 2012 can thus be seen as a return of the industry to results that were more typical of the decade preceding 2008.
Reserve releases for the period 2008 to 2012 have been comparable to those in the five preceding years (see Figure 3 on page 2). Taken together with the greater calendar year loss and allocated loss adjustment expense (ALAE) ratios observed during this time, this suggests that the industry expects the coverage years 2008 through 2012 to produce loss and ALAE ratios higher than those of the preceding years. This is consistent with the moderate rate decreases taken during this time period. Coupling this issue with the greater frequency experienced during this time period only serves to compound the effect of the lower rate levels.
Read the entire analysis in the latest issue of P&C Perspective.