September 01, 2008
A claims game
A claims game
Outside of Los Angeles and a few other broadcasting hot spots, there aren't too many areas where people gauge the health of a profession by what's happening with television.
But count Maria B. Moreno, a Washington-based insurance specialist for long-term care providers, as an exception. A senior vice president for Aon Association Services, Moreno has kept a close eye on industry indicators for many years.
She's known when providers were going to get hit with insurance rate increases even before they knew themselves. And lately, she's also been attuned to factors that have actually been dropping rates.
But no spreadsheet or white-paper analysis has been perhaps more telling to her than her television. Gladly, she says, she can now watch with less anxiety.
“Thankfully, now I can turn on the TV and there's not a night I see advertisements from attorneys targeting nursing homes,” she says. “It's an improvement from the time when all you had to do was turn on the new or open a newspaper and there was something about major litigation at a nursing home because of abuse allegations or other things.”
While trouble spots still remain, providers who might have been conducting typical nose-to-the-grindstone work routines lately may not realize just how much the insurability climate has improved recently.
“We have been hearing that the insurance market is soft and we have obtained favorable policy enhancements over the past year. We aren't sure if this is the direct result of a softening insurance market or if it's because we've been able to identify good opportunities,” acknowledges Thomas H. Grape, chairman and CEO of Benchmark Assisted Living. “However, it always pays to take the time to look around for the best deal.”
No more ‘hard' time
The deals are better than many might remember, if they haven't gone insurance shopping lately.
“It's important for people to know there's a sort of ‘sea change' in the marketplace,” Moreno says. “Basically, the insurance industry in general has enjoyed a few years of what we'll call ‘good loss experience,'” which has translated to lower rates for providers.
Much like lenders' recent courting of long-term care operators for business in recent years, insurers have, in many cases, been moving around on bended knees before operators themselves, figuratively speaking.
“We're seeing that some people are happy because they got a 10 percent reduction (in premium costs) but they may not fully realize what's available in the market. There may be even better deals for them,” says Joanne Wankmiller, Managing Director, National SeniorCare Practice Leader for Marsh, a major insurance broker and risk advisor.
Many providers with good records have seen premium price cuts in the double digits for a little more than two years, insurance experts point out. That's a far cry from the “hard” market from around 2000 to 2004, when even providers with excellent histories were sometimes walloped with rate hikes of 50% or more annually, they point out.
“Rates are very ‘soft' right now. There is a lot of capacity (to write policies) and a lot of insurers willing to write professional liability and general liability for nursing homes,” says Ed Croak, vice president and product line manager for long-term care for AIG Healthcare, a division of the Lexington Insurance Company.
AIG, along with CNA, are widely recognized by industry experts as the two insurance carriers that did not flee and continued to offer nursing home policies throughout the “hard” market. Another small handful offered coverage at the regional level.
Now, the estimated number of carriers offering coverage nationally ranges from eight to more than a dozen. Even more offer complementary coverage.
“For the late 1990s, our results were very poor, and we had multiple numbers of loss-ratios above 100%, meaning we were paying out many more times than we took in over those time periods,” Croak explains. “As an industry, we were probably concentrating in the ‘90s on the wrong kind of exposures (coverage).”
Losses mounted and insurers determined they had to change the way they did business. Providers who could find insurance suddenly found the game was much more expensive.
“We decided to change the way we underwrote. We raised our rates because they were inadequate. We also changed the policy from ‘occurrence' to ‘claims made,'” he said (see accompanying glossary). “We also switched from deductible to a self-insured retention. It switches the responsibility from the insurer to the insured and cuts our expenses.
“Our results improved because we took dramatic actions—in some years very dramatic.”
The picture brightens
Insurers say that around 2004, the market began to soften. Results improved and more insurance carriers re-entered the long-term care marketplace, driving prices down.
“Nursing home owners are much more aware of what general and professional liability losses can do to them,” Croak says. “It created a higher awareness of what you can do when a claim comes in, and how to handle it. They understand better that they have to take action to prevent things from happening. The level of care over the last ten years has brought us to the point where more insurers are willing to join the process.”
One method of improvement came through pursuing a “coordinated care” model that integrates treatments between doctors, institutions, residents and family caregivers, said Dr. John Mach, chairman of Evercare, a healthcare coordination firm.
“One result of this model is a very low incidence of malpractice events,” he said. “Providing individualized, closely-monitored and coordinated care–as well as effective communication–in our long-term care settings can lead to better health outcomes and downward pressure on insurance costs.”
Rise of risk management
Marsh's Wankmiller says that actuarial forecasts around the turn of the century were overblown, leading to results “better than they had anticipated.” She also pointed to tort reform, particularly in states such as Florida and Texas, which saw premium rates skyrocket,or become unavailable. Insurers fled the states earlier this decade but recently began returning.
“Texas definitely has been a success. In Florida, I don't see anything to the contrary, that it's not been successful. I don't see any of the insurance carriers saying they won't write policies in Florida or Texas.
“When tort reforms are positive,
a lot of good things happen. Tremendous efforts by the elder care community with good, solid risk management protocols have driven improvements in the overall picture,” she added.
Wankmiller said trade associations deserve credit for aggressively pursuing quality initiatives and group coverages for further improvements in recent years.
The American Health Care Association, National Center for Assisted Living, American Association of Homes and Services for the Aging, and the Assisted Living Federation of American all have special programs geared to the provider, she pointed out.
There is currently more than $450 million in coverage capacity in the senior living sector — a huge number that reveals insurers' optimism in the industry, she explained.
Not so fast
But hers also is a voice of caution.
“I think we'll start to stabilize a bit, and I don't think we'll see such large (rate) decreases,” she says. “We're seeing people (carriers) start to put a little more limit in place than they previously had.”
Despite many workplace improvements, worker's compensation programs have continued to be an expensive, thorny issue for providers, she added.
Certain states, including Arizona, Arkansas and New Mexico, continue to “be cause for concern. There's a lot of tort activity all over the place.”
Falls continue to be far and away the most prevalent reason for lawsuits against providers, according to annual research from insurance carrier CNA. They're followed in prevalence by allegations of improper care, in both the skilled nursing and assisted living settings. Pressure ulcers, medication errors, failure to adequately monitor and abuse are other top reasons for lawsuits.
According to CNA, the biggest reasons for claims against providers are:
• Resident care record documentation
• Alterations or late entries to the care record
• Tasks exceeding employee's training level
• Former employee testimony
• Not responding to survey deficiencies
• Complaint surveys used as evidence
• Failure to respond in a timely manner-calling 911
While stakeholders agree the market will surely harden, they don't know when.
“From the casualty side, we can probably say it's looking pretty consistent through the end of the year,” Wankmiller said. Property coverage claims are always harder to handicap, but also get resolved quicker, she added.
“At some point, someone's going to put on the brakes and say that in order for us to write this kind of business, we have to bring some reasonableness back into it,” noted Aon's Moreno. “It's going to come down to how long the insurance carriers can work to sustain this. It could be another couple of years.”
The current push in Congress to restrict the use of pre-admission arbitration clauses could dampen insurers' enthusiasm for the sector, but a lot depends on what would be in the final version of such a bill, Wankmiller and Moreno agree.
Neither seemed to think such a bill by itself would cause too much havoc in the underwriting sector.
With an eye toward a future hard market, which insurance cycles all but guarantee, Wankmiller recommends providers take advantage of the favorable climate to explore options for the future. This includes doing feasibility studies into self-insurance captives.
Some experts think that the next hard market won't be as rough as those in the past. But nobody can be certain at this point.
“I don't see evidence that we've hit the bottom of this soft cycle. But when the market does turn again, it probably will not be back to the very hard market of eight years ago,” says AIG's Croak. “It will probably inch back up if carriers such as AIG find we've overshot the mark and can't afford the losses coming in.”
Steps providers have already taken will soften any upturn, he said.
“Risk management in its broadest context has improved significantly over the past ten years in the nursing home liability area. There are better policies and procedures available to operators now than ten years ago, more sophisticated approaches and higher technology in patient care.”
In addition, outside forces have compelled better care and, therefore, less costly litigation, he believes.
“With the huge scrutiny providers are under from the federal government and everyone else, it's brought pressure to them. They're under the microscope more than ever.
“And maybe families are putting more pressure on providers to provide better care. The ability of the general population to get information on long-term care institutions, is probably another factor that has helped operators provide better care to these patients.”
At a glance:
Broker — An insurance intermediary who represents the insured, rather than the insurer.
Captive — An insurance company that finances (self insures) the risks of its owners or participants. Captives are licensed under special purpose insurer laws and operated under a different regulatory system than commercial insurers.
Casualty — Insurance that is primarily concerned with the losses caused by injuries to individuals, and legal liability imposed on the insured for such injury or for damage to property of others.
Claim — A demand by an individual or corporation to recover, under a policy of insurance, for a loss they incurred or believed they have incurred.
Claims made coverage — An insurance policy that covers claims first made, reported or filed during the year the policy is in force for any incidents that occur that year or during any previous period during which the insured was covered under a “claims-made” contract.
Premium — The amount of money the insured pays to receive coverage described in the policy or bond.
MedMal — A slang term commonly used to denote the type of professional liability insurance (medical malpractice) coverage written to cover healthcare providers.
Occurrence coverage — An insurance policy covering claims that arise out of damage or injury that takes place during the policy period, regardless of when claims are made. Most commercial general liability insurance is written on an occurrence form.
Professional liability — Coverage designed to protect traditional professionals (e.g., physicians) and quasi-professionals (e.g., real estate brokers) against liability incurred as a result of errors and omissions in performing professional services.
Property — Type of insurance that indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril, such as fire or explosion.
Umbrella or excess — Type of insurance that covers unanticipated or catastrophic losses.
Workers compensation — A system by which no-fault benefits prescribed in state law are provided by an employer to an employee (or the employee's family) due to a job-related injury (including death) resulting from an accident or occupational disease.