Liability Improving for Long-Term Care

The frequency and severity of liability claims for the long-term-care industry are stable nationally, according to the "Long Term Care: 2008 General Liability and Professional Liability Actuarial Analysis" from Aon Global Risk Consulting. This is the first time that's been the case in the nine years that Aon has crunched the claims trends.

The authors report that average liability loss costs per bed were down to $1,460 in 2007, from $2,030 in 1998. In part, it's because severity is down--from an average of $261,000 in 1998 to $138,000 last year. Frequency has flattened out as well. In 2007, it was at 10.6 claims per 1,000 occupied beds, having peaked in 2003 at 11.5.

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Theresa W. Bourdon, author of the study, attributes the turnaround primarily to tort reform. Last year, for the first time, the researchers calculated numbers separately for states with tort reform and states without and had an "ah hah" moment, recalled the managing director. It became apparent that it costs 50 percent more to settle a claim in a state without reform than it does in a reform state.

"Tort reform does work if the objective is to lower the costs of litigation," she said.

But this year's research also points to claims costs that are stabilizing in states without tort reform. So something else must be contributing to the improvement. Yes, agreed Bourdon, there are several other factors. Nursing homes are focusing on the quality of care and overall risk management. Staffs are doing a better job communicating with residents' families.

And long-term care companies are employing better defense strategies and increasingly using arbitration when conflicts and claims do arise. These factors also attribute to the leveling off of claims costs in states with tort reform.

The takeaways from the Aon study are not entirely peachy, however. For example, those improved defense strategies come at a higher cost. About 55.2 percent of total claims costs go to attorneys. The average general/professional liability claim cost $59,400 to defend in 2006, versus $29,900 in 2001.

"That is absolutely the result of providers of nursing-home care ... hiring better quality attorneys and their investing in national strategies," Bourdon said, adding that providers are willing to spend more to send the message: "We will defend ourselves."

Another study takeaway is that some states are not controlling claims costs, namely Arkansas, Tennessee and California. Arkansas had the highest per-bed loss costs out of any state in the study and Tennessee was second and going higher. Still, the overall national trend for the industry is positive. In the last 12 to 24 months, said Bourdon, more carriers are willing to write liability for long-term care.

July 1, 2008

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