I. Risky Business: A Liability Insurers Roundtable

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

Royal & SunAlliance is known in the marketplace as being “very particular” about the risks it selects. When Tapasak was asked about the “ideal” risk, he responded, “A rural, privately owned or faith-based operation, either a nursing home or CCRC, with no other owned or operated locations. Other key factors: tenure of 3 years or more for both the DON and the administrator; higher than average staff-to-resident ratios; three or fewer deficiencies on the most recent survey, with none being of serious scope or severity; no substantiated complaint surveys for the past 3 years; solid clinical protocols, qualified with a Quality Indicator analysis and phone interview with the DON; a strong emphasis on staff safety and satisfaction; and a sincere interest in making necessary improvements with assistance from the insurance carrier’s accident prevention team.”

Also important to the Royal underwriters are a “strong connection to the community, with no adverse publicity and a proactive communication policy with family members.” Beyond that, strong financials are important. “We also look to write insurance in areas which are not highly litigious, and/or those with substantial limitations on the tort damages.”

Tapasak summed up, “If we can do a good job of selecting and working with risks to reduce losses, Royal can be a stable, reliable market for those customers.”

Charles Colburn, Manager, Professional Liability/Long Term Care Division, CNA HealthPro

“CNA is, and will continue to be, one of the leading writers of this class of business, countrywide,” said Colburn. “We continue to look for new business opportunities. We will continually re-evaluate our position with respect to new state legislation to determine if we have an opportunity to make an underwriting profit. If not, we will no longer be active in that state’s market.”

When asked about long-term care providers’ current interest in possible “alternative markets,” Colburn responded, “Whenever a hard insurance market exists, we see many captives, RRGs (risk retention groups), etc., being formed or discussed. However, facilities should go into this with their eyes wide open. They need to know some important details, such as the form of coverage; how well capitalized the program is; who is handling the claims; who is providing risk-management consultation services; who, if anyone, is providing the reinsurance; and the market-related knowledge and expertise of the underwriting manager.”

When asked about future pricing, Colburn said, “Future pricing will depend on many factors: What is the appetite for this line of business among the reinsurers? What legislation, both at the federal and state levels, has been enacted? What will happen on the reimbursement front?” Having said that, he added, “We see the LTC market continuing to have difficulty for at least the next 12 to 18 months. We continue to see severity trends rising, and until companies can get comfortable with that, they are charging what they see as the correct rates.”

To summarize, it’s quite obvious that liability insurance carriers in the long-term care market have great concern about their ability to select and retain those risks that are the least likely to be involved in a lawsuit. You might have to expect increases in your premiums for the immediate future, no matter what. To minimize that impact, you need to plan carefully for your next renewal period. Be sure that you are doing everything possible to make your facility “lawsuit-proof.” And make sure, via your agent, that your carrier knows of every effort you have made along those lines, so that the underwriting process will accurately and fairly reflect your operation. NH

For further information, contact Linda Boyle at Care Insurance Services, Omaha, Nebraska, phone (402) 399-9800.

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