the bi settlement process and structure of negotiated payments richard a. derrig automobile insurers...
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![Page 1: The BI Settlement Process and Structure of Negotiated Payments Richard A. Derrig Automobile Insurers Bureau of MA Herbert I. Weisberg Correlation Research](https://reader035.vdocuments.net/reader035/viewer/2022062409/56649e915503460f94b963d8/html5/thumbnails/1.jpg)
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
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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
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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)
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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%
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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%]
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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%).
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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
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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
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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.