The BI Settlement Process and Structure of Negotiated Payments

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The BI Settlement Process and Structure of
Negotiated Payments

• Richard A. Derrig
• Automobile Insurers Bureau of MA
• Herbert I. Weisberg
• Correlation Research Inc.

NBER Insurance Group Meeting Cambridge,
Massachusetts February 6-7, 2004
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BI Settlement Issues I

• IRC Studies (1977, latest 2002 CY)
• AIB Studies (1986, latest 1996 AY)
• Medicals Dominate
• Injury Types
• General Damages

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BI Settlement Issues II

• Investigation
• Suspicion of Fraud and Build-up
• Settlement Negotiation
• Low Impact Collision
• Passengers
• Bad Faith
• Evolution Over Time

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Comparison of Disability Distributions1989 BI
Claims vs. 1996 BI Claims
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Total Claimed Medical Charges by Type of Service
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Injury Type Changes
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Total Claimed Medical Charges by Type of Service
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General Damages

• Special Damages are Claimant Economic Losses
• Medical Bills
• Wage Loss
• Other Economic
• General Damages are Residual of Negotiated
  Settlement Less Specials
• Three Times Specials is a Myth

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Table 1
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Table 2
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Negotiated Settlements

• Specials may be Discounted or Ignored
• Medicals Real or Built-up?
• Information from Investigation
• Independent Medical Exams (IMEs)
• Special Investigation
• Suspicion of Fraud or Build-up

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Independent Medical Exams

• Policy Requirement (Mass)
• General Claim Information plus Medical
  Examination
• Outcomes
• No change recommended
• Refused or no show
• Damages mitigated or
• Treatment curtailed
• Cost (350, 75 no show)

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mean calculation of non-zero entries
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Settlement Modeling

• Major Claim Characteristics
• Tobit Regression for Censored Data
• (right censored for policy limits)
• Evaluation Model for Objective Facts
• Negotiation Model for all Other Facts,
  including suspicion of fraud or build-up

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Evaluation Variables

• Prior Tobit Model (1993AY)
• Claimed Medicals ()
• Claimed Wages ()
• Fault ()
• Attorney (18)
• Fracture (82)
• Serious Visible Injury at Scene (36)
• Disability Weeks (10 _at_ 3 weeks)
• New Model Additions (1996AY)
• Non-Emergency CT/MRI (31)
• Low Impact Collision (-14)
• Three Claimants in Vehicle (-12)
• Same BI PIP Co. (-10) Passengers -22

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Negotiation Variables

• New Model Additions (1996AY)
• Atty (1st) Demand Ratio to Specials (8 _at_ 6 X
  Specials)
• BI IME No Show (-30)
• BI IME Positive Outcome (-15)
• BI IME Not Requested (-14)
• BI Ten Point Suspicion Score (-12 _at_ 5.0 Average)
• 1993 Build-up Variable (-10)
• Unknown Disability (53)
• 93A (Bad Faith) Letter Not Significant
• In Suit Not Significant
• SIU Referral (-6) but Not Significant
• EUO Not Significant
• Note PIP IME No Show also significantly reduces
  BI PIP by
• discouraging BI claim altogether (-3).

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Total Value of Negotiation Variables
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• Actual parameters for negotiation and evaluation
  models, with and without suspicion variable, are
  shown in the hard copy handout

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References

• Derrig, R.A. and H.I. Weisberg 2003, Auto
  Bodily Injury Claim Settlement in Massachusetts,
  Final Results of the Claim Screen Experiment,
  Massachusetts DOI 2003-15.
• Derrig, R.A. and H.I. Weisberg, 2003,
  Determinants of Total Compensation for Auto
  Bodily Injury Liability Under No-Fault
  Investigation, Negotiation and the Suspicion of
  Fraud, Working paper, Automobile Insurers Bureau
  of MA.
• Derrig, R.A., H.I. Weisberg and Xiu Chen, 1994,
  Behavioral Factors and Lotteries Under No-Fault
  with a Monetary Threshold A Study of
  Massachusetts Automobile Claims, Journal of Risk
  and Insurance, 612, 245-275.
• Ross, Lawrence H. 1980, Settled out of Court,
  (Chicago, III Aldine).
• Insurance Research Council 1999, Injuries in
  Auto Accidents, An Analysis of Auto Insurance
  Claims. Malvern, PA
• Insurance Research Council 2003, Auto Injury
  Insurance Claims. Countrywide Patterns in
  Treatment, Cost, and Compensation, Malvern PA
• Abrahamse, A. and Stephen J. Carroll 1999, The
  Frequency of Excess Claims for Automobile
  Personal Injuries, Automobile Insurance Road
  Safety, New Drivers, Risks, Insurance Fraud and
  Regulation, Claire Laberge-Nadeau, and Georges
  Dionne, Eds., Kluwer Academic Publishers,
  131-151.