1

CURRENT TRENDS

Decreasing Frequency since 2002

Increasing Severity since 2002 driven by:

• Environmental Factors

• Joint & Several Liability

• Increase volume and dollars of Mega Verdicts

– Judicial Hell Holes

• No Fault Thresholds

– Outright Fraud and Excessive Treatment

• New and different tort allegations

2

Reported Frequency-Bodily Injury

1.8000

1.8500

1.9000

1.9500

2.0000

2.0500

2.1000

2.1500

2.2000

2.2500

2.3000

1998 8

1999 2

1999 8

2000 2

2000 8

2001 2

2001 8

2002 2

2002 8

2003 2

2003 8

2004 2

Transaction Month

Freq

uenc

y(1

2MM Re

porte

d Cla

ims p

er 10

0 Po

licies

)

Countrywide VoluntaryPrivate Passenger Auto Bodily Injury Liability

Re-Scale

Source: ISO

3

Changes in Severity of BI- 1997-2002

Changes in Severity of BI

0%

10%

20%

30%

40%

50%

60%

70%

80%

No lost w orkdays No days of restricted activity No disability

1987 1992 1997 2002

Source: IRC

4

Paid Severity-Bodily Injury

6,000

6,500

7,000

7,500

8,000

8,500

9,000

Transaction Month

Seve

rity

(12M

M Pa

id $ per

Claim

)

Countrywide VoluntaryPrivate Passenger Auto Bodily Injury Liability

Re-Scale

Source: ISO

5

Urban vs. Rural

• Auto accidents with damages alleged are more likely to occur in Urban areas, while fatalities are more likely in Rural Areas.

• 80% of the crashes occurred in urban areas.

• Injury claim frequencies were 29% higher in urban areas than in the rest of the country.

• Collision claim frequencies were 33% higher in urban areas than in the rest of the country.

• 70% of pedestrian deaths occur in the urban settings.

Source: IRC and the Highway Data Institute

6

Age Related/Traffic Fatalities

• In 2002, drivers older than 65 made up 12% of all traffic fatalities.• Of these fatalities, 81% occurred during the day, and 75%

involved other vehicles.• In 2002, drivers older than 80 made up 50% of all traffic fatalities

at intersections.• By 2030, driver 70 and older are projected to make up 25% of

traffic fatalities.

Traff ic Fatalities (65 and Older)

0%

5%

10%

15%

20%

25%

30%

2002 2010 2015 2020 2025 2030

Source: National Highway Traffic Safety Administration-Feb 2004

7

Lawsuit Status of ClaimantsLaw suit Settlement Trend

0%

5%

10%

15%

20%

25%

30%

BI UM UIM

Law suit Filed-Settled before Trial Law suit Filed-Settled during Trial Law suit Filed-Tried to Verdict

Source: IRC: Auto Injury Insurance Claims-2002

Lawsuit Status BI UM UIMNo Lawsuit Filed 87% 93% 76%Lawsuit Filed-Settled before Trial 12% 6% 23%Lawsuit Filed-Settled during Trial 0% 0% 0%Lawsuit Filed-Tried to Verdict 1% 1% 1%Total 100% 100% 100%

* Settled during Trail > 1%

8

Results of Verdicts for Claimants Tried to Verdict

Results of Verdicts for Claimants Tried to Verdict

0%

10%

20%

30%

40%

50%

60%

Less than lastoffer

Equal to lastoffer

Larger than lastoffer and less

than last demand

Equal to lastdemand

Larger than lastdemand

BI UM UIM

Outcome of Verdict BI UM UIMLess than last offer 23% 13% 14%Equal to last offer 4% 6% 0%Larger than last offer and less than last demand 57% 53% 43%Equal to last demand 3% 6% 21%Larger than last demand 12% 22% 21%

Source: IRC: Auto Injury Insurance Claims-2002

9

Mega Awards – Jury Desensitization

State Jury Award Year

Arizona $3,000,000 1998Kentucky $13,000,000 1998Mississippi $100,000,000 2002

$6,000,000 20015,400,000 20014,600,000 2001

$23,500,000 19974,500,000 20018,100,000 2001

Pennsylvania $100,000,000 1999Washington $3,790,000 1998

TABLE 1. Mega Awards In States Without Caps

Nevada

North Carolina

Source: ASPE Review of Media Reports from The Advocate, Las Vegas Review, North Carolina Lawyers Weekly, and other select sources.

County/State Jury AwardMadison County, IL $ 10,100,000,000 New Orleans, LA $ 2,500,000,000

$ 51,400,000 $ 28,000,000,000 $ 4,900,000,000

St. Louis, MO $ 2,200,000,000 $ 100,000,000 $ 145,000,000,000 $ 1,000,000

Miami-Dade, FL $ 21,000,000 $ 5,000,000

LA County, Central Civil West, CA

Philadelphia, PA

TABLE 1.1 Mega Awards In States Without Caps Between 2001-2003

Source: American Tort Reform Association

10

Judicial Hellholes

• Madison County, Illinois

• Jefferson County (Beaumont), TX

• 22nd Judicial circuit, MS

• Hildalgo County, TX

• Orleans Parish, LA

• Kanawha County, WV

• Nueces County, TX

• Los Angeles County, CA

• Philadelphia, PA

• Miami-Dade County, FL

• City of St. Louis, MO

• Holmes and Hinds Counties, MS

Green indicates county has been on the top list for 2 straight years.

11

Excessive Treatment Fraud• One third of all bodily injury claims for automobile accidents

contain some element of fraud• The majority of the auto fraud is related to padding, build –

up or exaggeration of claims• 33% of survey respondents said it was acceptable to

exaggerate an insurance claim

Source: IRC, NYS Court of Appeals

• 12 states and Puerto Rico have no-fault auto insurance laws: Florida, Michigan, New Jersey, New York, Pennsylvania, Hawaii, Kansas, Kentucky, Massachesetts, Minnesota, North Dakota and Utah.

• New York between 1995 to 2000, the average paid per PIP claim rose 65% compared to 25% in other no-fault states. (Between 1992 and 2001, reports of suspected fraud soared 275%, mostly in no-fault. NYS, Ct of Appeals.)

• “ Limited Tort Option” or Threshold

No-Fault Thresholds

12

Combating the Trends: Claims Representative - Claimant

Relationship Issues• Communication is the number one concern for both Insurance and

Corporate Litigation:

– Direct Communication with Claimants

• Timely initial contacts

– Expectations set and met

– Pro-active, early investigation

– Follow up contacts

• Early Resolution Opportunities

• Better communication between Claims Adjusters and Claimants has lead to a decrease in Attorney Representation.

Source: Insurance Risk Management Institute, IRC, Fulbright & Jaworski

13

Attorney Penetration by Coverage

Attorney Penetration by Coverage

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BI UM UIM PIP MP

1987 1992 1997 2002

Coverage 1987 1992 1997 2002BI 55% 57% 52% 47%UM 57% 59% 51% 42%UIM 87% 89% 87% 83%PIP 31% 31% 30% 28%MP 32% 32% 25% 23%

Source: IRC: Auto Injury Insurance Claims-2002

14

Combating the Trends: Claims Representative - Attorney

Relationship Issues• Goals:

– Expectations set by Insurers made clear to Defense Counsel.

– Insurers want to reward early resolution, lowest overall claims cost, price certainty, and negotiated settlements, but rarely measure due to lack of reporting tools.

– Insurers want quality, but mostly do not measure it or reward it.

• Communication:

– Audits performed by independent attorneys on Defense Counsels indicate that current procedures were put into place by Insurers due to prior exploitations by defense firms, not best practices.

– Defense Counsel has issues dealing with claims adjusters with little experience controlling the outcome of cases. Avg. Age of a Caims Adjuster is 23 years old.

– Defense Firms claim that Insurers are placing increasingly complex and onerous requirements on them.

• Choice of Counsel:

– Insurer’s Approved Panel Counsel List need to reflect experience and results and not focus primarily on cost.

– Emphasis on greater utilization of Quality In-House CounselSource: Insurance Risk Management Institute, Fulbright & Jawarski