Medical Inflation and Rising Auto Casualty Claim Severity
The increasing financial impact surrounding medically consulted injuries resulting from motor vehicle incidents remains a serious challenge. In 2018, these injuries totaled 4.5 million, with injury costs at an estimated $445.6 billion.
In the first six months of 2020 alone, there were an estimated 2.086 million medically consulted injuries resulting from crashes, a stark number considering the reduction in U.S. daily trips taken and miles driven in 2020 as a result of COVID-19.
While the introduction of advanced driver-assistance systems (ADAS) features like automatic braking have been successful in reducing Bodily Injury (BI) claim frequency, claim severity — the average submitted medical specials per injured party — continues to rise across both BI and Personal Injury Protection (PIP)/MedPay claims.
Accumulating data-driven insights show how macro-trends impact auto injury claims severity and challenge auto insurers. These include increasing speed limits, drug use, aging populations and greater treatment complexity. These trends fuel higher healthcare costs, increasing insurer charges per claim.
How Medical Inflation Impacts Casualty Claims
Healthcare costs are increasing faster than overall inflation. U.S. health care spending rose to $3.65 trillion in 2018, rising above $11,000 per person for the first time.
A comparison of the Bureau of Labor’s Consumer Price Index (CPI) data reveals that some of the fastest growth in the last decade occurred in 2016, and costs in 2019 continued to increase faster than overall CPI.
BI Claim Severity Year Over Year
Although BI claim frequency continues to trend downward, BI claim severity continues to increase. The rising average severity can be observed nationally by aggregating data from all states for medical specials related to third-party claims. Overall, the average submitted per demand increased from $21,807 in 2017 to $24,500 in 2019 — a total increase of around 12 percent.
Note: These results show that CCC Injury Evaluation Solutions (IES) remains effective in evaluating medical specials, as evidenced by an average adjustment from submitted to recommended of 48 percent over the same three-year period.
On a state-by-state basis, BI severity was up across most of the U.S. These changes were most evident in highly populated states like California and Texas. However, population size was not the only indicator of increased BI severity, as severity was up in lower-population states as well.
PIP/MedPay Claim Severity Year Over Year
Unlike BI claims, PIP/MedPay claims have increased in frequency since 2018. PIP/MedPay claim severity has also increased, though at a lower rate than BI claims. From 2017 to 2019, the average adjustment submitted per claim increased from $15,512 to $17,472. The average adjustment from submitted to recommended held steady at around 61 percent over this period.
Historically, these changes in PIP/MedPay severity were driven mainly by three of the largest states with no-fault approaches to medical expense considerations: Florida, Michigan and New York. Michigan recently passed a major no-fault reform law in 2019, portions of which went into effect July 1, 2020. As a result, Michigan residents are no longer required to purchase unlimited, lifetime personal injury protection.
Factors Increasing Claim Severity
Earlier in this article we mentioned several macro trends that influence accident frequency and severity, but there are several other factors to consider that could more directly impact the amount insurers pay. Among these factors are the following: procedures billed, length of treatment and attorney involvement.
From 2015 to 2019, the top diagnoses for BI claims have remained consistent in terms of overall dollars charged. These include neck pain (Cervicalgia) and neck sprain/strain, which have consistently ranked within the top one or two diagnoses billed over this time frame.
Similarly, PIP/MedPay claims analyzed during this same period reveal little change in the diagnoses of injuries, with neck pain or neck sprain/strain again holding the top spots for diagnoses billed. As rear-end collisions continue to be the most common type of accident, these results aren’t surprising.
So why are medical costs increasing across both BI and PIP/MedPay claims? For one, the same types of injuries are now being treated with more expensive approaches.
When looking at the most common procedures related to BI claims, there is little change in ranking of these procedures based on amount paid from 2015 to 2019. However, there are two noteworthy exceptions: an increase in ranking for emergency department visits as well as the appearance of “CT head/brain without contrast material” in the top 10 procedures billed (starting in 2016).
According to data from the Centers for Disease Control and Prevention, emergency visits, hospitalizations and deaths related to traumatic brain injuries (TBIs) increased 53 percent between 2006 and 2014. It is possible that TBIs among athletes who have sustained numerous concussions has led to more concern among individuals injured in vehicle crashes about similar injuries, subsequently leading to more claims with related medical procedures.
Medical procedures for PIP/MedPay claims also saw a greater use of emergency room visits as well as an increase in neurology procedures. This was true for both frequency and in terms of dollars billed. Costs for these more expensive treatments are also increasing at a much faster rate than traditional modalities such as chiropractic care and physical therapy.
New vehicle safety features could also have an impact on rising costs. If ADAS is reducing the frequency of low-speed crashes resulting in minor injuries, insurance carriers may be left with more high-velocity collisions where injuries are more severe.
For example, the average Delta V — the change in velocity that a vehicle experiences during a collision — for vehicles with moderate to severe impact has increased to all-time highs for both frontal collision claims and rear-end liability claims during the COVID-19 pandemic. With many vehicles now traveling at faster speeds, those that are getting in accidents are seeing greater damage, to both the vehicle and its occupants.
The overall number of procedures billed per demand is also on the rise. While unique procedures per demand have remained constant, total procedures billed per demand for BI claims have increased steadily since 2017.
And though the average number of unique procedures for PIP/MedPay claims remained the same from 2017 to 2019, the average number of procedures grew from 105 to 119. The PIP states of Florida, Michigan and New York have seen the biggest increases in average procedures billed per claim since 2017, going up by 11, 20 and 16 procedures (units), respectively.
Length of Treatment
For BI claims, there has been a significant change in the average number of days between the first treatment date of service to the last, growing from 140 days in 2015 to 211 days in 2019. The median number of days grew from 85 to 91 days over the same period.
California, Michigan and New York saw the largest increase in average length of treatment from 2017 to 2019, up 7, 12 and 9 days, respectively.
Attorneys are becoming increasingly involved in auto injury claims. According to a recent Insurance Research Council (IRC) study, attorney involvement for BI claims climbed to 52 percent in 2017, compared to 49 percent in 2007 and 50 percent in 2012. The trend can also be seen for PIP claims, where attorney involvement increased to 39 percent in 2017, up from 32 percent in 2007 and 36 percent in 2012.
When attorneys are involved, claims often have higher utilization rates for chiropractic treatment, physical therapy and expensive diagnostic procedures such as MRIs and CT scans, increasing complexity and severity.
Increased Bodily injury and PIP/MedPay severity combined with social inflation are factors that all automobile insurance carriers must take into consideration today. Facilities billing amounts are on the rise, with little treatment and billing consistency for insurance carriers, even when dealing with the same procedures and locations.
The ability to implement solutions to assist in understanding and addressing the impact of these severity trends as they continue to change is essential for carriers being able to provide affordable coverage for their policyholders.
CCC continues to implement new solutions to help carriers mitigate auto injury claim severity. By applying AI and analytics to injury causation and bill review, CCC is driving innovation for BI claims through its Third-Party Injury Evaluation Solutions (IES) platform as well as PIP/MedPay claims through the CCC First-Party solution.
To learn more about CCC’s First- and Third-Party solutions, please visit our Casualty Claims page.