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					No Fault Then and Now
2003 CAS ANNUAL MEETING
Presented by Steven G. Lehmann, FCAS, FSA, FCIA, MAAA Pinnacle Actuarial Resources, Inc. www.pinnacleactuaries.com November, 2003

Colorado No-Fault

Born: Died:

April 1, 1974 July 1, 2003

Context
Report for the Colorado Auto Insurance Working Group to determine cost implication of two possible scenarios for Colorado’s No-Fault Law (1) a comprehensive re-write of the nofault law (2) The complete repeal of the no-fault law

Background
• Original law effective April 1, 1974 • Tort threshold for non-economic losses
• • • • • $500 Death Dismemberment Permanent Disability Permanent Disfigurement

• Monetary threshold changed to $2,500 in 1985

Background (cont’)
PIP Benefits (Effective 1/1/85) • $50,000 medical (originally $25,000) • $50,000 rehabilitative services (orig. $25,000) • Up to $400 per week loss of income for 52 weeks (orig. $125 per week) • $25 per day essential services • $1,000 per person death benefit • Basic policy available for low-income

Pure Premium
100 120 140 160 180 20 40 60 80 0

Personal Insury Protection Pure Premium

Colorado Quarter Ending Countrywide

75 -4 77 -1 78 -2 79 -3 80 -4 82 -1 83 -2 84 -3 85 -4 87 -1 88 -2 89 -3 90 -4 92 -1 93 -2 94 -3 95 -4 97 -1 98 -2 99 -3 00 -4 02 -1

Average PIP Pure Premium Changes
Countrywide
Last 5 years + 27%

Colorado
+49%

Since 1975

+574%

+ 1,320%

Study Findings Estimated Premium Effect
All Coverages 1 No-fault overhaul with 8-points 8-pt. (Med. Protocols, Reasonable & Nec., PIP limit to Med, Ext. review) 8 –pt. Optional Non-traditional 8-pt. Optional Essential Services - 10% to – 14% 0% to – 4% State Mandated Coverages - 20% to – 28% 0 % to – 8%

- 4% - ½%

-9% -1%

8-pt. Optional Wage
Verbal Threshold 2 3 4 5 6 7 8 9 No-fault overhaul with all elements/$25,000 PIP No-fault overhaul with all elements/$50,000 PIP No fault overhaul with $25,000 PIP + $75,000 catastrophe (7+consecutive days in hospital) Tort with no med pay Tort with $2,500 med pay Tort with $5,000 med pay Tort with $10,000 med pay Tort with $25,000 med pay

-2%
-3% -13% to – 16% -11% to – 15% -10% to – 14% -17% -11% -9% -7% -4%

-4%
-6% -26% to – 32% -22% to – 29% -20% to – 28% -36% -36% -36% -36% -36%

Determination of Impact of No-Fault Repeal
• 1999 IRC Study • Effects of introduction of prior No-Fault laws • Experience of states that have repealed nofault laws

Experience of States That Have Repealed No-Fault Laws
1) Georgia ($500 medical threshold) BI pure premium effect +8% to 12% 2) Nevada ($750 medical threshold) BI pure premium effect +17% to 24% 3) Connecticut ($400 threshold) BI pure premium effect – 3% to +4% 4) Colorado ($2500 threshold) Estimated BI pure premium effect +25%

Study Conclusions - No-Fault Repeal Est. Premium Effects
• • • • BI + 22% UM + 11% Liability pkg. w/o PIP - 36% All coverages w/ $5,000 med - 9%

Premium Effects of No-Fault Repeal
Premium Effects of No-Fault Repeal Current Average Rate (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
Bodily Injury PIP Property Damage “Mandated” Liability sub-total Medical Payments Uninsured Motorists Comprehensive Collision Sum of Major Coverages Sum of Major Coverages + $2,500 Medical Sum of Major Coverages + $5,000 Medical Sum of Major Coverages + $10,000 Medical Sum of Major Coverages + $25,000 Medical 151.19 190.71 101.39 443.28 4.41 51.20 165.57 215.73 880.19

After Repeal
184.30 0.00 101.39 285.69 4.41 61.71 165.57 215.73 733.10 782.41 799.11 819.16 849.23

Premium Savings

35.6%

16.7% 11.1% 9.2% 6.9% 3.5%

Supplementary Information Cost Containment
PA PIP: February 7, 1990 • Reduced required medical benefit from $10,000 to $5,000 • 110% of Medicare fee schedule • Peer review

Supplementary Information
Pennsylvania PIP relative to Countrywide PIP Yearending Quarter 89-4 91-2 91-3 91-4 92-1 92-2 92-3 92-4 93-1 93-2

Claim Frequency 1.000 0.978 0.999 1.002 1.001 0.970 0.936 0.916 0.908 0.906

Claim Severity 1.000 0.764 0.748 0.730 0.716 0.717 0.721 0.714 0.702 0.698

Pure Premium 1.000 0.747 0.748 0.732 0.716 0.696 0.675 0.654 0.638 0.632

Supplementary Information Cost Containment
Hawaii - 1993 • Limited PIP charges to workers compensation fee schedule (Medicare +10%) • Limits did not apply to emergency medical treatment

Supplementary Information Cost Containment
Hawaii PIP relative to Countrywide PIP Yearending Quarter 93-4 95-1 95-2 95-3 95-4 96-1 96-2 96-3 96-4 97-1 97-2

Claim Frequency 1.000 0.919 0.930 0.962 0.979 0.962 0.947 0.909 0.885 0.891 0.886

Claim Severity 1.000 0.968 0.967 0.892 0.822 0.759 0.709 0.721 0.733 0.725 0.724

Pure Premium 1.000 0.890 0.900 0.858 0.805 0.730 0.671 0.656 0.649 0.646 0.641

Cost Containment - Conclusion
Introduction of medical fee schedule of 110% of Medicare will reduce PIP losses by 13% - 19%


				
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