LONG TERM CARE FACILITIES: TRENDS IN MEDICAL PROFESSIONAL LIABILITY INSURANCE

[This is Part 2 of a 3-Part series of posts that will explore Professional Liability for Long Term Care Facilities.]

If you’re an insurance agent looking to focus more on insuring long-term care facilities, you need to know what the current marketplace is like for their medical professional liability (MPL) insurance.   In my last article, I outlined a basic landscape of the types of residential long term care facilities.  This article focuses on various trends that affect the purchase of medical professional liability for long term care facility accounts.

CLAIMS

The actuarial services division of AON Risk Solutions provides analysis each year for the professional and general liability claims for the long-term care facility market.  You can find a full copy of their findings here.  Although their study is limited to analyzing only a portion of the overall marketplace (representing about 17% of all long-term care beds), it is considered a credible source of claim trending information.

Here are the Key Findings from their report that you need to know:

• Costs to defend, settle or litigate claims are increasing by 5.0% annually
  • Costs increased from $1,200 per occupied bed in 2006 to $1,940 in 2014
• Claims frequency is increasing by 3.0% annually
  • Frequency increased from .71 per 100 occupied beds in 2006 to .90 in 2014
  • Forecasted 2015 GL/PL frequency is .93 claims per 100 occupied beds
• Claim severity is increasing by 2.0% annually
  • Severity per claim increased from $170,000 in 2006 to $214,000 in 2014
  • Forecasted 2015 GL/PL severity is $218,000 per claim

The bottom line is that AON’s study shows that claims frequency and severity are both on the rise, albeit gradually.  The costs to fight claims is also rising.  Although these percentages aren’t alarmingly high, AON’s analysis shows these trends have continued since 2008.

CARRIER COMPETITION

Despite the gradual rise in negative claims trends in the last few years, there’s still plenty of competition among insurance companies who want to insure long-term care facilities.  In my March 2014 article, I noted that a couple of carriers had stopped writing long term care accounts and questioned whether we would see a continuation of that trend.  My research since that article shows that some of the remaining carriers have adjusted their underwriting parameters to take a more cautious approach going forward.

Some carriers I work with have simply narrowed their targets to a more defined group of risks.  For example, some only target assisted living centers now and will no longer consider writing skilled nursing homes.  Other changes in carrier appetite are more specific.

As of the writing of this article, I counted at least 15 to 20 different carriers or programs all over the country who write varying types of long term care facility risks.  There could be more if I include smaller programs and risk retention groups (RRGs) that target niche risks in specific geographies.  Suffice it to say that there are still many competing carriers in this space, although with most carriers making some adjustments in their targets over the last year.

HARD-TO-PLACE ACCOUNTS

As carriers begin to adjust and redefine their target insureds, a growing number of long term care facilities are having difficulty getting quotes from multiple carriers.  Facilities that have experienced higher than average claims or pesky survey issues are more apt to struggle in finding a carrier interested in bidding competitively for their insurance.  These ‘hard-to-place’ accounts make for challenging placements for retail agents.

The number of hard-to-place facilities will continue to grow as the industry’s claims trends grow.  Carriers will be increasingly more cautious about their books of business as their own loss ratios climb as a result of those trends.  Therefore, agents need to know where to go with accounts that have increasingly difficult risk profiles.

SUMMARY

When I see these kinds of trends over prolonged periods of time, I expect carriers to adjust their appetites and writings to find better risks in order to avoid the negative implications in these trends.  In response, insureds will seek to move their coverage more frequently in search of avoiding price increases and coverage retractions.  This creates opportunity for agents and brokers who will be called on to aid in the placement of these accounts during such moves.