This case involves a state-run fund for medical malpractice claims that allegedly claimed disproportionately large reserves from healthcare providers. An actuarial expert familiar with two specific provisions of the fund dealing with actuarial communications and unpaid claims estimates was sought to review claims data and help determine the adequate amount of reserves that should be allocated for this fund.
Question(s) For Expert Witness
- 1. Are you familiar and comfortable working with Actuarial Standards 41 and 43?
- 2. How would you determine what adequate reserves would be in this situation and what information would you use to figure it out?
Expert Witness Response E-035495
I am a certified financial examiner, a certified public accountant, and served as chief state financial examiner. I was an insurance regulator for almost 30 years, and my tasks included the analysis of all types of insurance companies, including malpractice companies and including the reserves for such companies. I reviewed reserves of companies in the process of financial examinations to determine their financial condition, as well as reviewed the results of actuaries who reviewed or prepared/set reserves.
To determine adequate reserves is a very complex area, but to put it simply, there are two main ways to review adequacy: 1) review the development of an entity’s claims over time, on a year-to-year basis to determine if the previous reserve development was adequate or was understated. From this you can also impute forward possible redundancies or deficiencies based on past trends. Or 2) compare an entity’s reserve development (adequacy) to industry experience. This is often done in a situation where an entity may be young and not have extensive experience. So lacking one’s own experience, you look at the industry as a whole as to how much reserves need to be established for specific types of claim reserves.
Expert Witness Response E-061402
I have been a practicing actuary for 38 years and have extensive experience with financial reporting. I serve as the appointed actuary for several property and casualty insurance companies. I also have specific experience with medical malpractice insurance reserves, including the extended reporting provisions and liabilities associated with physician death, disability and retirement. To determine what the adequate amount of reserves would be in this situation, I would review the historical paid and reported claims history and use development factors to estimate the ultimate losses. If the historical data is not fully credible, we could rely on industry development from the AM Best Aggregates and Averages. I have worked on similar projects, having been the opining actuary for a company that wrote medical malpractice, and I have performed state insurance examinations on insurance companies that wrote medical malpractice.