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I. Risky Business: A Liability Insurers Roundtable

August 1, 2002
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By Linda Boyle, Founder, National Council of Healthcare Agents
I. Risky Business: A Liability Insurers Roundtable By Linda Boyle, Founder, National Council of HealthCare Agents Risk management: It's a concept you need to understand fully to stabilize your future. Insurance carriers are looking for the proof that you know how to identify your own risk exposures and find solutions. When the time comes for your next renewal, make certain your agent is telling the carrier your story-the whole story. But what are today's carriers looking for? How do they see the future? Recently, I asked those questions of key officials from several of the major carriers writing long-term care liability insurance coverage today. Here's what they told me:

Gerald C. Dillon, Vice-President of First State Management Company (Member of The Hartford Financial Services Group)

When asked about his firm's current market position, Dillon responded that the current "hard market" for the insurance industry, particularly in the long-term care arena, has piqued the interest of First State, which is known as a "sur-plus lines" sector of the Hartford group, handling the more challenging sectors of the market. Dillon indicated that the "ideal" long-term care facility to meet First State's underwriting guidelines looks like this: It is small and privately owned by people from the local community. For-profit or not-for-profit organizations are both acceptable. They must be characterized by adequate staffing and staff training, and by low staff turnover.

Indeed, First State's "hot button" is staffing. Dillon said he has consulted with the National Citizens Coalition for Nursing Home Reform to identify what it considers to be adequate staffing levels on all shifts. First State feels strongly that a facility's staffing can make the difference in providing quality care.

Another important issue for First State: survey results. A higher number of defi-ciencies than the state average and the presence of high-level deficiencies, both indicating poor quality of care, are of major concern to Dillon's group.
Another important factor: staff team-work. Does management communicate well with the direct-care staff? How does that relate to the staff's communication with the resident and resident's family members?

When asked about the pricing and availability of insurance, Dillon re-sponded, "We need to see some serious reduction in both the frequency of law-suits and the severity of the judgments before the pricing can stabilize.

Maria Moreno, Vice-President of Aon/Huntington T. Block (American Association of Homes and Services for the Aging [AAHSA] Property/ Casualty Program)

The AAHSA/Aon connection goes back to 1981, with Aon serving as the broker and The Hartford Insurance Group as the endorsed carrier for the entire term. "During the soft market," said Moreno, "many carriers jumped into the marketplace, and the premiums were priced competitively-and much too low. The stock market problems of the past few years have added to the profitability problems of the overall insurance market. Thus, those insurance carriers that have been writing coverages for the long-term care marketplace have been hit by losses that have been unexpectedly higher than anticipated. Premiums that are too low, losses that are higher than expected, the reduction of investment income and the increases in the cost of reinsurance as a result of September 11-all these add to the increase in pricing and the lack of availability for this class of business."

"Hartford began to see the problem in 1999," she continued, "and began slowly inching the pricing up to try to combat some of the losses that were showing up in long-term care. Because of the increase in exposure, Hartford has changed one important guideline in its underwriting process: Now, no more than 50% of all eligible beds or units may be designated as 'skilled care.'" Moreno acknowledged that this has hit some long-time customers hard, "and it is difficult to let them know that they are no longer eligible for the program." Hartford, she said, "will try to do whatever is possible to keep its long-term clients who have otherwise performed well" (i.e., have a good loss ratio).

Moreno noted that Hartford has a constructive philosophy concerning the survey process. "Hartford recognizes that some states are really tightening up on the process, so the company anticipates that there could be what appears to be a downgrade of these operations. Of course, they are concerned about high-level deficiencies and quality-of-care issues in general. If the state average number of deficiencies is six and the facility has 20, they recognize this as a management problem."

Shep Tapasak, Practice Leader-Long Term Care Division, Royal & SunAlliance