2004 PIAA MEMBERSHIP

2004 PIAA MEMBERSHIP

41 PHYSICIAN(MD/DO) INSURERS 2 DENTAL/OMS INSURERS 3 HOSPITAL INSURERS 1 PODIATRIST INSURER 1 CHIROPRACTIC INSURER 9 INT’L PHYSICIAN INSURERS57 TOTAL PRIMARY INS CO. MEMBERS

22 AFFILIATE MEMBERS

USA PIAA COMPANIES INSURE:

12/02 12/03 %

Physicians287,569 310,522 +08

Dentists 24,139 31,215 +29Oral Surgeons 3,665 6,057 +65Podiatrists 14,000 15,400 +10Chiropractors 33,308 34,845 +05Hospitals 1,163 1,371 +18

INTERNATIONAL PIAA COMPANIES INDEMNIFY:

Physicians 346,925Dentists 24,959Hospitals 139

PIAA DATA SHARING PROJECT

Average and Median Claim Payment Values

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

1988 1990 1992 1994 1996 1998 2000 2002

Average Payment Median Payment

Actual Dollar Value

2003 $ Values

Average and Median Claim Payment Values

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

1988 1990 1992 1994 1996 1998 2000 2002

Average Payment Median Payment

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

1990 1992 1994 1996 1998 2000 2002

Avg -All Claims Avg-Pd Claims Avg-No Pmt

Average Expense Payment ValuesActual Dollar Values

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

1990 1992 1994 1996 1998 2000 2002

Avg -All Claims Avg-Pd Claims Avg-No Pmt

Average Expense Payment Values

2003 $ Values

Average PaymentsIndemnity and Expenses

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Avg Expenses Avg Indemnity

% of Paid Claims by Payment Threshold

0

10

20

30

40

50

60

70

80

90

100

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

$250K-<$500K

$100K-<$250K

$500K-<$1M

<$100K

=>1M

Claim Payments =>$1 Million

Year

% of Paid Claims

Source: PIAA Data Sharing Project 2003

8.15%

0

4

8

85 87 89 91 93 95 97 99 '01 '03

Outcome of Malpractice CasesClosed in 2003

Dropped/Dismissed

SettlementsDefenseVerdicts

PlaintiffVerdicts

Source: PIAA Data Sharing Project 2004

24.4%69.7%5.1%

0.8%

PAYMENT VALUES – 2003As of May 2004

Mean Indemnity Payment $328,757

Mean Settlement $ 322,544

Mean Verdict $ 430,601

PAYMENT VALUES – 2003As of May 2004

Mean Indemnity Payment $328,757

Mean Expense Payment $ 29,683

Won at Trial $ 87,720

Lost at Trial $123,543

Settled $ 45,716

Dropped/Dismissed $ 17,408

TORT REFORM

Health Care Liability Reform

• $250,000 cap on non-economic damages

• Collateral source rule changes

• Periodic payment of future damages

• 1/3 year statute of limitations/repose

• Joint and several liability

• Contingency fee limits

Savings from MICRA ReformsCalifornia vs. U.S. Premiums 1976 - 2001

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1

Source: NAIC Profitability By Line By StateSource: NAIC Profitability By Line By State$ Billions

Other U.S. + 573%Other U.S. + 573%CA + 182%CA + 182%

PIAA

Savings from MICRA ReformsCalifornia vs. U.S. Premiums

1976 - 2002

0 .00 .51 .01 .52 .02 .53 .03 .54 .04 .55 .05 .56 .06 .57 .07 .58 .08 .59 .0

7 6 7 7 7 8 7 9 8 0 8 1 8 2 8 3 8 4 8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 1 2

Source: NAIC Profitability By Line By StateSource: NAIC Profitability By Line By State

$ Billions

Other U.S. + 755%Other U.S. + 755%CA + 245%CA + 245%

Specialty Los Angeles Denver Chicago MiamiInternal Medicine $9,510 $11,180 $35,756 $65,697General Surgery 26,600 39,036 92,576 226,542Obstetrics & Gyn. 45,530 34,868 139,696 249,196

Data Source: Medical Liability Monitor2003 Premium Survey Data for Selected Specialties

$1 million/3 million limits

Los Angeles rates -CAP-MPT Chicago rates -Illinois State Medical Ins. Services, Inc.Denver rates -COPIC Insurance CompanyMiami rates -First Professionals Insurance Company

California Premiums Low w/ Tort Reform:

HCLA/MICRA Nevada Mississippi Ohio

$250,000 Cap on Non-economic Damages (per occurrence)

Non-economic Damages Capped at $350,000 per plaintiff and per defendant. This does not apply to “gross malpractice” or if the court finds exceptional circumstances.

No cap on Non-economic damages if judge determines that punitive damages MAY apply. No cap for disfigurement. Otherwise $500,000 to $750,000 to $1m.

{2004 legislation capped non-economic damages at $500,000.}

Cap of $350,000 per plaintiff or $500,000 per occurrence (provided that 3 times economic losses exceeds $250,000.) Cap of $500,000 per plaintiff or $1,000,000 per occurrence if there is permanent and substantial physical deformity, loss of use of a limb, loss of a bodily organ system or permanent physical functional injury.

Collateral Source Introduction at trial

Mandatory collateral source offsets (excluding amounts for which there is a right of subrogation, if notice is served before settlement or entry of judgment).

None Collateral Source Introduction at trial, except if the source has a right of subrogation.

HCLA/MICRA Nevada Mississippi Ohio

Periodic payment of future damages over $50,000 - Mandatory

Set by court at the request of claimant.

None Periodic payment of future damages over $50,000 - Discretionary

Statute of limitations and statute of repose. 3 years from the date of injury and 1 year from the date of discovery. Exception for minors, the longer of 3 years or age eight.

Prior to October 1, 2002, 4 years from date of injury and 2 years from date of discovery.

After October 1, 2002, 3 years from date of injury and 2 years from date of discovery. [EXCEPTION for minors]

For claims “accruing” on or prior to June 30, 1998, 2 years from discovery.

For claims accruing after June 30, 1998, 2 years from discovery and 7 years from occurrence. [EXCEPTIONS for minors and foreign objects]

1 year statute of limitations (exceptions) and 4 year statute of repose (exceptions)

HCLA/MICRA Nevada Mississippi Ohio

Several liability (only) for non-economic damages

Several liability (only) for non-economic damages.

Several liability (only) for economic and non-economic damages.

Prior Law: Several liability (only) for non-economic damages

Contingency fee limits

NONE NONE NONE

Arbitration – Allowing health care providers and their patients to contract for the arbitration of disputes.

NONE NONE Non-binding, non-admissible arbitration allowed. Contractual binding arbitration between the provider and patient prior to care permitted.

HCLA/MICRA Nevada Mississippi Ohio

Other:

Volunteer immunity

Limits of $50,000 on all civil damages for governmental entities.

Requires affidavit by a medical expert supporting the allegations.

Mandatory settlement conferences.

Other:

Volunteer immunity

Forum shopping restrictions.

Requirement to file written notice of intention to begin action (60 Days).

Requirement that attorney certify that 1) he has consulted with an expert (i.d. is not required) in the standard of care or negligence; or, 2) the attorney didn’t have time to comply with #1; or, 3) Three different experts refused to provide such consultation.

Other: Data Collection provisions.

Volunteer provider immunity

Pretrial hearing to establish good faith of a claim

Creates the Ohio Medical Malpractice Commission

Superintendent of Insurance shall study the feasibility of a PCF.

Tort Reforms Have Passed In The US House of Representatives

Nine Times•1995 - Common Sense Product Liability and Legal Reform

Act

- Balanced Budget Act of 1995

• 1996 - Health Care Coverage Availability and Affordability Act

• 1997 - Balanced Budget Act of 1997

- District of Columbia Appropriations Bill

Tort Reforms Have Passed In The US House of Representatives

Nine Times, Cont’d.

• 1998 - Patient Protection Act

• 2002 - HEALTH Act – HR 4600 (217, 203)

• 2003 - HEALTH Act – HR 5 (229, 196, 1)

• 2004 - HEALTH Act – HR 4280 (229, 197)

THE HEALTH ACTHR 4600, HR 5, HR 4280

• $250k CAP ON NON-ECON DAMAGES

DOES NOT PRE-EMPT STATE CAPS

• COLLATERAL SOURCE RULE – EVID.

• CONTINGENCY FEE LIMITATIONS

• 1/3 STATUTE OF LIMITATIONS

• PERIODIC PAYMENTS

• JOINT AND SEVERAL LIABILITY

Congressional Budget Office Scoring of HR 5

March 10, 2003

$18.1 Billion Savings 2004 – 2012

$8.5 Billion Savings to the States 2004 - 2012

“…premiums for medical malpractice insurance ultimately would be an average of 25 percent to 30 percent below what they would be under current law.”

USDHHSAddressing the New Health Care Crisis: Reforming the Medical Litigation System

to Improve the Quality of Care

March 3, 2003

“Over the last two years, states with limits of $250,000 or $350,000 on non-economic

damages have seen average…increases of 18%, but states without…have seen average

increases of 45%.”

JOINT ECONOMIC COMMITTEEU.S. CONGRESS

May 6, 2003

Study found tort system fails to achieve its goals to compensate the injured and deter

negligence.

According to JEC, tort reforms would reduce overall spending on healthcare, saving between

$67 and $106 BILLION over ten years.

http://www.house.gov/jec/tort/05-06-03.pdf

US GENERAL ACCOUNTING OFFICEJune, 2003 – Multiple Factors Have

Contributed to Increased Premium Rates

Increased Losses are Primary DriverDecreased Investment IncomeCompetition Drove Rates DownIncreased Cost of Reinsurance

US GENERAL ACCOUNTING OFFICE

Aug, 2003 – Implications of Rising Premiums on Access to Health Care

Studied FL, PA, WV, MS, NV Increased Losses Primary DriverOnly Localized Access Problems Rates Grew Slower in States With Tort Reform

Polls Conducted by HCLA

Q1. Do you think the number of malpractice suits against health care providers is higher than justified, about right, or lower than is justified?

3/04 4/02 9/00 12/99

2/95

Higher than is justified

55% 42% 49% 42% 43%

About right 24% 30% 25% 30% 18%

Lower than is justified

16% 13% 22% 13% 8%

Don’t know/Refused

5% 15% 4% 15% 30%

Polls Conducted by HCLAQ2. Would you favor or oppose a law to limit the

percentage that a personal injury trial lawyer can receive as a fee from any settlement or award for his or her client?

3/04 4/02 9/00 12/99 3/95Total Favor 73% 76% 79% 80% 76%

Total Oppose 25% 23% 19% 15% 17%

Strongly Favor 54% 55% 61% 59% 58%

Somewhat Favor 19% 20% 18% 20% 18%

Somewhat Oppose 12% 10% 9% 7% 8%

Strongly Oppose 13% 12% 11% 8% 9%

Don’t know/Refused 2% 2% 1% 3% 7%

Polls Conducted by HCLAQ3. Please tell me whether you agree or disagree

with the following statement: One of the primary reasons health care costs are rising is because of medical malpractice lawsuits. Do you agree or disagree with this statement? 3\04 4/02 9/00 12/99 3/95

Total agree 72% 71% 64% 63%

Total disagree 26% 28% 34% 29%

Strongly agree 49% 49% 38% 37%

Somewhat agree

23% 22% 26% 26%

Somewhat disagree

12% 12% 16% 13%

Strongly disagree

14% 16% 19% 16%

Don’t Know/Refused

2% 1% 1% 4%

Polls Conducted by HCLAQ4. Again, please tell me whether you agree or

disagree with the following statement: Doctors and health care providers in some states across the country are leaving their practices due to increasing medical liability costs. I’m concerned that this might impact the availability and quality of the care I receive. 3/04 4/02Total agree 82% 78%Total disagree 16% 21%Strongly agree 59% 51%Somewhat agree 24% 27%Somewhat disagree

8% 13%

Strongly disagree 8% 9%Don’t Know/Refused

2% 1%

Polls Conducted by HCLA

Q5. Would you favor or oppose a law which guarantees full payment for lost wages and medical expenses, but reasonably limits the amount that can be awarded for ‘pain and suffering’ in medical malpractice cases?

3/04 4/02 9/00 12/99 3/95Total Favor 72% 73% 72% 70% 70%

Total Oppose 23% 26% 25% 20% 19%

Strongly Favor 41% 39% 43% 38% 35%

Somewhat Favor

31% 34% 29% 32% 35%

Somewhat Oppose

11% 11% 10% 10% 10%

Strongly Oppose

12% 14% 15% 10% 9%

Don’t know/Refused

5% 1% 2% 6% 10%

MAJOR ISSUESThe Insanity of the Process

• THERE IS NO CRISIS – AVG CLAIM PAYMENT IS $30,000, AVG PREMIUM $9,000

• INSURERS ARE AT FAULT FOR CRISIS BECAUSE THEY WERE MISMANAGED AND LOST ALL THEIR MONEY ON THE STOCK MARKET

• MICRA DOESN’T WORK – PROP 103 IS RESPONSIBLE FOR GOOD EXPERIENCE IN CALIFORNIA

Medical Malpractice - Market Review and Update

39

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

1995 1996 1997 1998 1999 2000 2001 2002

Percentage of Cash and Invested Assets

Bonds Stocks Mortgages Real Estate Cash & ST Other

40

45.7%

42.6% 42.9% 42.0%

33.4%32.4%

29.7%

18.4%

21.0%

0%

10%

20%

30%

40%

50%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Investment Income as a Percent of Premiums

Medical Malpractice – Financial Update

Source: Tillinghast-Towers PerrinSource: Tillinghast-Towers Perrin

Major Conclusions

• Underwriting Losses Primarily Responsible for Rate Increases

• Increases in CA and Other States With Effective Tort Reforms Have “Without Question” Been Consistently Lower in All Phases of the Cycle