Medical Malpractice

Medical Malpractice Claims Still Rising

The impact of tort reform has lessened, and average claims severity is rising rapidly.
By: | March 3, 2014 • 3 min read

Medical malpractice claims increased by nearly 8 percent in severity in 2012, driven by large claims costing $2 million or more, according to new research by insurer Beazley.

The findings, which form part of Aon Risk Solution’s 2013 Hospital and Physician Professional Liability Benchmark Analysis report, uncover an upward trend that started in 2006.

The average severity for closed claims with indemnity has climbed from just above $300,000 to almost $500,000 in the space of six years.

More worryingly, however, the research revealed that the gap in the average severity for closed claims with indemnity narrowed between all U.S. states and those states where tort reform has been passed — from $100,000 in 2009 to $50,000 last year.

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Steve Chang, head of Beazley’s health care claims team, told Risk & Insurance® that the report’s data supported his own findings over the last two years.

“We have similarly felt a very acute uptick in the most severe claims,” he said.< "The most interesting part of the report was in the non-tort reform states. We have been feeling some pressure [in terms of claims] in some states that have historically been considered benign, and the report really confirmed our experiences."

Plaintiff’s attorneys “have become very savvy at circumventing the caps in place in tort reform states for non-economic damages in order to ensure their clients receive greater economic damage compensation.”

— Steve Chang, head of Beazley’s health care claims team

Chang said there has been a “spillover effect” with the migration of big verdicts awarded in favor of the plaintiff in traditionally high severity states to lower risk jurisdictions, adding that there was no longer a big geographical split as there had been before.

“We are getting a lot of these anomalies where a large verdict will push up the settlement values of subsequent cases and therefore courts are being forced to try cases they wouldn’t normally have considered five years ago, which is creating a vicious cycle,” he said.

Beazley, which maintains a claims database covering 38 percent of U.S. hospital beds, reported that plaintiffs’ attorneys were now pushing for inflated economic damages in the form of large life care plans in states where non-economic damages are capped.

“The knock-on effect is that plaintiffs’ lawyers in tort reform states have been reading about these verdicts in non-tort reform states and many are inclined to try and emulate these results,” said Chang.

“They have become very savvy at circumventing the caps in place in tort reform states for non-economic damages in order to ensure their clients receive greater economic damage compensation.”

An example of this significant shift in plaintiff attorneys’ strategy can be found in Maryland, which despite being a tort-reform state, experienced an increase in average closed claims severity from $423,000 in 2006 to $750,000 in 2012, according to the report.

These findings are backed up by Beazley’s own claims handling experience, said Chang.

The research found that plaintiffs have also switched their focus to high severity cases, driven by catastrophic injuries and the potential for large awards rather than pursuing high volumes of relatively low value cases.

Furthermore, Beazley’s research found that 43 percent of claims above $5 million related to obstetric procedures, with the rate of increase outpacing that of non-obstetric claims.

The Physician Insurers Association of America’s national database of medical professional liability claims reflects a steady increase in severity of claims for higher risk procedures such as obstetrics, and general and orthopedic surgery.

“We have known for some time that our losses are driven primarily by obstetrics claims, but what surprised me most was the significant increase in the value of closed claims between 2005 and 2012,” said Chang.

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Divya Parikh, director of research and risk management at the Physician Insurers Association of America’s (PIAA), concurred with the report’s findings.

She said the PIAA’s national database of medical professional liability claims likewise reflected a steady increase in severity of claims for higher risk procedures such as obstetrics, and general and orthopedic surgery.

“While there has been a leveling off in the frequency of claims overall, it seems intuitive that there would be more interest in claims with bigger payouts attached,” she said.

“Obstetrics and gynecological surgery tend to report the highest number of paid claims on our database and in general they also account for the highest average individual payouts in most cases.”

Chang added that U.S. health care reform could accentuate this trend of increased claims in the long-term as more people begin to gain access to better medical services and coverage.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

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Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.” Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

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Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]