18
BI Settlement Issues I BI Settlement Issues I IRC Studies (1977+, latest 2002 IRC Studies (1977+, latest 2002 CY) CY) AIB Studies (1986+, latest 1996 AIB Studies (1986+, latest 1996 AY) AY) Medicals Dominate Medicals Dominate Injury Types Injury Types General Damages General Damages

The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Embed Size (px)

Citation preview

Page 1: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

BI Settlement Issues IBI Settlement Issues I

IRC Studies (1977+, latest 2002 CY)IRC Studies (1977+, latest 2002 CY) AIB Studies (1986+, latest 1996 AY)AIB Studies (1986+, latest 1996 AY) Medicals DominateMedicals Dominate Injury TypesInjury Types General DamagesGeneral Damages

Page 2: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

BI Settlement Issues IIBI Settlement Issues II

InvestigationInvestigation Suspicion of Fraud and Build-upSuspicion of Fraud and Build-up Settlement NegotiationSettlement Negotiation Low Impact CollisionLow Impact Collision PassengersPassengers Bad FaithBad Faith Evolution Over TimeEvolution Over Time

Page 3: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Injury Type ChangesInjury Type Changes

InjInj 8989 9696

FractureFracture 14%14% 5%5%

InpatientInpatient 7%7% 4%4%

Serious Serious VisibleVisible

14%14% 2%2%

Prior Inj.Prior Inj. 6%6% 27%27%

Source: AIB Final Report (2003)Source: AIB Final Report (2003)

Page 4: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Total Claimed Medical Charges Total Claimed Medical Charges by Type of Serviceby Type of Service

1996 BI Claims

Other1%

ER 10%

Inpatient17%

Ambulance2%

Outpatient70%

MO & MI 22%

PT & PO 14%

MD only 11%

CH & CO 23%

Page 5: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

General DamagesGeneral Damages

Special Damages are Claimant Special Damages are Claimant Economic LossesEconomic Losses– Medical BillsMedical Bills– Wage LossWage Loss– Other EconomicOther Economic

General Damages are Residual of General Damages are Residual of Negotiated Settlement Less SpecialsNegotiated Settlement Less Specials– ““Three Times Specials” is a MythThree Times Specials” is a Myth

Page 6: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Figure 8-31996 Settlement/Specials Ratio Distribution

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

0 to 0.5 0.5 to 1 1 to 1.5 1.5 to 2 2 to 2.5 2.5 to 3 3 to 3.5 3.5 to 4 4 to 4.5 4.5 to 5 5 to 5.5 5.5 to 6 6 to 6.5 6.5 to 7 7 to 7.5 7.5 to 8 8 to 8.5 8.5 to 9 9 to 9.5 9.5 to 10 10 to 20 20 to 30

Settlement/Specials Ratio

% o

f C

laim

s

Page 7: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

BI 1996 Negotiations1st and 2nd Demands

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

ALL Not in Suit In Suit

Dol

lars

0

50

100

150

200

250

300

350

Cla

im C

ount

s

Mean Demand 1

Mean Demand 2

Mean BISettlement

Claim Count

Page 8: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

CSE: First & Second Demand Ratio to BI Settlement Ratio

Limited to 2nd Demand > $0, (315 BI Claims)NO PIP payment in Demand & Settlement, Outlier removed 3860

y = 1.4088x + 0.3452

R2 = 0.5691

y = 2.6414x + 1.4777

R2 = 0.1953

0

2

4

6

8

10

12

14

16

18

20

0 2 4 6 8 10 12 14 16 18 20

BI Settlement Ratio

Fir

st &

Sec

on

d D

eman

d R

atio

First Demand

Second Demand

2nd Demand Ratio

1st Demand Ratio

BI Settlement Ratio 1:1

Page 9: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

BI Negotiation Leverage PointsBI Negotiation Leverage Points

Adjuster AdvantagesAdjuster Advantages

Adjuster has ability to go to trialAdjuster has ability to go to trial

Company has the settlement fundsCompany has the settlement funds

Attorney, provider, or claimant needs Attorney, provider, or claimant needs moneymoney

Adjuster knows history of prior settlementsAdjuster knows history of prior settlements

Adjuster can delay settlement by Adjuster can delay settlement by investigationinvestigation

Settlement authorization process in Settlement authorization process in companycompany

Initial Determination of LiabilityInitial Determination of Liability

Table 1Table 1

Page 10: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

BI Negotiation Leverage PointsBI Negotiation Leverage Points

Attorney/Claimant AdvantagesAttorney/Claimant Advantages

Attorney/Claimant can build-up specialsAttorney/Claimant can build-up specials

Asymmetric information (Accident, Injury, Asymmetric information (Accident, Injury, Treatment)Treatment)

Attorney/Claimant can fail to cooperateAttorney/Claimant can fail to cooperate

Attorney has experience with companyAttorney has experience with company

Investigation costs the company moneyInvestigation costs the company money

Attorney can allege unfair claim practices Attorney can allege unfair claim practices (93A)(93A)

Adjuster under pressure to close filesAdjuster under pressure to close files

Table 2Table 2

Page 11: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Negotiated SettlementsNegotiated Settlements

Specials may be Discounted or Specials may be Discounted or IgnoredIgnored

Medicals: Real or Built-up?Medicals: Real or Built-up? Information from InvestigationInformation from Investigation Independent Medical Exams (IMEs)Independent Medical Exams (IMEs) Special InvestigationSpecial Investigation Suspicion of Fraud or Build-upSuspicion of Fraud or Build-up

Page 12: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Settlement Ratios by Injury and SuspicionSettlement Ratios by Injury and SuspicionVariableVariable PIP Suspicion PIP Suspicion

Score Score

= Low (0-3)= Low (0-3)

PIP Suspicion PIP Suspicion Score Score

= Mod to High (4-= Mod to High (4-10)10)

PIP Suspicion PIP Suspicion Score = AllScore = All

1996 (N-336)1996 (N-336) 1996 (N-216)1996 (N-216) 1996 (N-552)1996 (N-552)

Str/SPStr/SP All All OtherOther

Str/SPStr/SP All All OtherOther

Str/SPStr/SP All All OtherOther

SettlementSettlement SettlementSettlement SettlementSettlement

81%81% 19%19% 94%94% 6%6% 86%86% 14%14%

Avg. Avg. Settlement/SpeciSettlement/Specials Ratioals Ratio

3.013.01 3.813.81 2.582.58 3.613.61 2.822.82 3.773.77

Median Median Settlement/SpeciSettlement/Specials Ratioals Ratio

2.692.69 2.892.89 2.402.40 2.572.57 2.552.55 2.892.89

Page 13: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Settlement ModelingSettlement Modeling

Major Claim CharacteristicsMajor Claim Characteristics Tobit Regression for Censored DataTobit Regression for Censored Data

(right censored for policy limits)(right censored for policy limits) Evaluation Model for Objective Evaluation Model for Objective

“Facts”“Facts” Negotiation Model for all Other Negotiation Model for all Other

“Facts”, including suspicion of “Facts”, including suspicion of fraud or build-up fraud or build-up

Page 14: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Evaluation VariablesEvaluation VariablesPrior Tobit Model (1993AY)Prior Tobit Model (1993AY) Claimed Medicals (+)Claimed Medicals (+) Claimed Wages (+)Claimed Wages (+) Fault (+)Fault (+) Attorney (+18%)Attorney (+18%) Fracture (+82%)Fracture (+82%) Serious Visible Injury at Scene (+36%)Serious Visible Injury at Scene (+36%) Disability Weeks (+10% @ 3 weeks)Disability Weeks (+10% @ 3 weeks)

New Model Additions (1996AYNew Model Additions (1996AY)) Non-Emergency CT/MRI (+31%)Non-Emergency CT/MRI (+31%) Low Impact Collision (-14%)Low Impact Collision (-14%) Three Claimants in Vehicle (-12%)Three Claimants in Vehicle (-12%) Same BI + PIP Co. (-10%) [Passengers -22%] Same BI + PIP Co. (-10%) [Passengers -22%]

Page 15: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Negotiation VariablesNegotiation VariablesNew Model Additions (1996AY)New Model Additions (1996AY)

Atty (1st) Demand Ratio to Specials (+8% @ 6 X Specials)Atty (1st) Demand Ratio to Specials (+8% @ 6 X Specials) BI IME No Show (-30%) BI IME No Show (-30%) BI IME Positive Outcome (-15%)BI IME Positive Outcome (-15%) BI IME Not Requested (-14%)BI IME Not Requested (-14%) BI Ten Point Suspicion Score (-12% @ 5.0 Average)BI Ten Point Suspicion Score (-12% @ 5.0 Average) [1993 Build-up Variable (-10%)][1993 Build-up Variable (-10%)] Unknown Disability (+53%)Unknown Disability (+53%) [93A (Bad Faith) Letter Not Significant][93A (Bad Faith) Letter Not Significant] [In Suit Not Significant][In Suit Not Significant] [SIU Referral (-6%) but Not Significant][SIU Referral (-6%) but Not Significant] [EUO Not Significant][EUO Not Significant]

Note: PIP IME No Show also significantly reduces BI + PIP byNote: PIP IME No Show also significantly reduces BI + PIP by discouraging BI claim altogether (-3%).discouraging BI claim altogether (-3%).

Page 16: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Total Value of Negotiation Total Value of Negotiation VariablesVariables

Total Compensation VariablesTotal Compensation Variables Avg. Claim/FactorAvg. Claim/Factor

Evaluation VariablesEvaluation Variables $13,948$13,948

Disability UnknownDisability Unknown 1.051.05

11stst Demand Ratio Demand Ratio 1.091.09

BI IME No ShowBI IME No Show 0.990.99

BI IME Not RequestedBI IME Not Requested 0.900.90

BI IME Performed with Positive BI IME Performed with Positive OutcomeOutcome

0.970.97

SuspicionSuspicion 0.870.87

Negotiation VariablesNegotiation Variables 0.870.87

Total Compensation Model PaymentTotal Compensation Model Payment $12,058$12,058

Actual Total CompensationActual Total Compensation $11,863$11,863

Actual BI PaymentActual BI Payment $8,551$8,551

Page 17: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

Actual parameters for Actual parameters for negotiation and evaluation negotiation and evaluation models, with and without models, with and without

suspicion variable, are suspicion variable, are shown in the hard copy shown in the hard copy

handouthandout

Page 18: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research

ReferencesReferences Derrig, R.A. and H.I. Weisberg [2003], Auto Bodily Injury Claim Derrig, R.A. and H.I. Weisberg [2003], Auto Bodily Injury Claim

Settlement in Massachusetts, Final Results of the Claim Screen Settlement in Massachusetts, Final Results of the Claim Screen Experiment, Massachusetts DOI 2003-15.Experiment, Massachusetts DOI 2003-15.

Derrig, R.A. and H.I. Weisberg, [2003], Determinants of Total Derrig, R.A. and H.I. Weisberg, [2003], Determinants of Total Compensation for Auto Bodily Injury Liability Under No-Fault: Compensation for Auto Bodily Injury Liability Under No-Fault: Investigation, Negotiation and the Suspicion of Fraud, Working paper, Investigation, Negotiation and the Suspicion of Fraud, Working paper, Automobile Insurers Bureau of MA. Automobile Insurers Bureau of MA.

Derrig, R.A., H.I. Weisberg and Xiu Chen, [1994], Behavioral Factors and Derrig, R.A., H.I. Weisberg and Xiu Chen, [1994], Behavioral Factors and Lotteries Under No-Fault with a Monetary Threshold: A Study of Lotteries Under No-Fault with a Monetary Threshold: A Study of Massachusetts Automobile Claims, Massachusetts Automobile Claims, Journal of Risk and InsuranceJournal of Risk and Insurance, 61:2, , 61:2, 245-275.245-275.

Ross, Lawrence H. [1980], Ross, Lawrence H. [1980], Settled out of Court,Settled out of Court, (Chicago, III: Aldine). (Chicago, III: Aldine). Insurance Research Council [1999], Injuries in Auto Accidents, An Insurance Research Council [1999], Injuries in Auto Accidents, An

Analysis of Auto Insurance Claims. Malvern, PAAnalysis of Auto Insurance Claims. Malvern, PA Insurance Research Council [ 2003], Auto Injury Insurance Claims. Insurance Research Council [ 2003], Auto Injury Insurance Claims.

Countrywide Patterns in Treatment, Cost, and Compensation, Malvern PACountrywide Patterns in Treatment, Cost, and Compensation, Malvern PA Abrahamse, A. and Stephen J. Carroll [1999], The Frequency of Excess Abrahamse, A. and Stephen J. Carroll [1999], The Frequency of Excess

Claims for Automobile Personal Injuries, Claims for Automobile Personal Injuries, Automobile Insurance: Road Automobile Insurance: Road Safety, New Drivers, Risks, Insurance Fraud and RegulationSafety, New Drivers, Risks, Insurance Fraud and Regulation, Claire , Claire Laberge-Nadeau, and Georges Dionne, Eds., Kluwer Academic Laberge-Nadeau, and Georges Dionne, Eds., Kluwer Academic Publishers, 131-151. Publishers, 131-151.