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"I think I missed the boat," one Lloyd's underwriter recently said to Mark Carlin, executive vice president at Lockton Insurance Brokers Inc. Business being business in London, the underwriter had an idea how well his fellow syndicates have fared as of late writing professional liability for long-term-care companies. And Carlin being a long-term-care expert, the underwriter wanted affirmation for his disappointment. But was the underwriter glum too soon? After all, the new long-term-care environment still features lowering losses, increasing rewards and improving risk management, when once the industry was as unappealing as, well, an old-age home. Carriers are still setting sail for long-term care, as they haven't done in a decade.

Kymberlee Keefe, for instance, went on a "road show" at the start of 2007. As national director of elder services at Aon Risk Services' Atlanta office, she was meeting with carriers and sounding out the professional-liability market. "Every single one of them is telling me that they're interested in at least starting to dabble in long-term care," she reports.

"A lot of that is due to the fact that carriers such as ourselves and our competitors have dramatically increased the rates that we charge for professional liability and general liability cover over that time period," says Ed Croak, senior underwriting officer for the long-term-care liability business at AIG Healthcare, "because we got whacked quite badly with losses in the 90s and early 2000s."

From a loss-ratio standpoint, the industry also looks more appealing than it did a decade ago, Croak says, because long-term-care facilities themselves have felt the sting of claims and have learned the gospel of risk management. That makes for an attractive market.

"(The new players) therefore think, possibly naïvely, that they can jump in now when prices are on the high side and there's enough fat in the premiums to take them forward," says Croak.

Well, not quite. One such new player, OneBeacon, suggests that it entered the softening professional-liability market primarily because they know now how to write it well.

"We've found a way to underwrite this business that we think gives us an advantage in this market," says Matt Wasta, vice president and product manager for the long-term-care product at OneBeacon Professional Partners. Wasta says his company applies "advanced underwriting techniques"--a way to use metrics and predictive modeling with about 100 quality indicators--that allow it to price on quality of facilities, rather than according to the market cycle.

He says there is a demand for such a product from risk managers interested in the potential for stable pricing. "So hearing somebody new, somebody different," he says, "they're always willing to listen."

Predictive modeling or not, there is no doubting the fact that money is still there to be made.

"The carriers have made a lot of money," says Carlin, "and that's been recognized."

Intent on catching their own boat, new insurers are undercutting the premiums of the more established markets. Hopefully, this capacity comes with a deeper understanding of the industry than underwriters had at the onset of the professional liability crisis of the 1990s and early 2000s. Then, insurers saw the cover as just a type of medical malpractice and long-term care as just another branch of health care, which they are not.

Phil Balderston, senior vice president, risk management, at multistate long-term-care provider Sunrise Senior Living, expresses confidence that today's underwriters have "gotten their arms around (long-term-care risk), they've adjusted for it."

And Carlin sees the current market as neither soft nor irresponsible. The prices were just so high before that insurers can charge less now and still make money, while trying to be smart about the risks they're writing. They're taking "rifle shots not shotgun blasts," Carlin says, "at what they perceive as the best risks."

RELUCTANT TARGETS

Better underwriting, lower prices--there must be a long waiting list for risk managers who want to meet with all these PL markets. Not exactly.

Carriers can try all they want to lure long-term-care operators out into the open. Risk managers might be attracted to cheaper cover. Some, according to Keefe, might even close captives and leave RRGs now that "true risk transfer" is back.

But many risk managers seem to be staying put.

"I am not 100 percent sure how the clients are going to react to it," Carlin says about the new capacity. "The ones who have been buying insurance are going to save some money. Yea! They're happy." He stops short of whipping out the confetti and noisemakers. "But the ones who haven't been buying insurance, I don't know if they're going to return to being insurance buyers or not."

Especially the national operations, which are effectively self-insured and "in a whole other world," he says.

With 400 communities across 37 different states, publicly traded Sunrise Senior Living surely qualifies for this other world. Though Balderston is on record as approving the new underwriting for professional liability, don't expect him to buy primary cover anytime soon.

"I don't see anything in the market trends currently that would say I would see us moving back to a first-dollar-type cover," the risk manager says.

"We're still going to be structured in a way probably at a low level, primary level. We're probably still going to take that risk inside and manage it ourselves," he says.

This involves placing the first layer above retention with the Bermuda marketplace, and operating a captive out of Vermont to help manage deductibles and retentions.

Balderston would be reluctant to abandon providing blanket cover for all of his assisted and independent living facilities in this way unless markets were to become "very competitive," he says.

According to brokers interviewed for this piece, most big-time risk managers operate the same way and will continue to do so--with captives, group captives, risk retention groups, excess coverage and retentions.

"They're very comfortable under those programs now," says John M. Atkinson, partner at Thilman Filippini, a Hilb Rogal & Hobbs company.

The industry, however, consists primarily of smaller regional and single-site operators, which are less inclined toward alternative risk tools and more excited about lower premiums, right? Not particularly.

"A lot of companies feel like carrying large limits of liability insurance puts a big target on their back, and so they're pretty much avoiding it," says Keefe.

Instead, they avoid any appearance of having fat pockets--and thus attracting the plaintiffs' bar--by stripping down to the minimal limits required by law in their respective states. Where there are no insurance requirements for a license, operators strip completely.

"There are a lot of companies right now, and a lot of facilities right now, that are completely bare," says Keefe. "When I say bare, I mean absolutely naked.

"Because long-term care is such a penny business," she continues, "it's very difficult for people to want to spend their money on insurance unless they think that there's really a benefit to purchasing the insurance or unless there's a requirement or a need."

Take Florida, for example, where the "Chapter 400" legislation passed in 2002 regulates how risk management is done in long-term care. The law requires that licensed facilities carry general and professional liability but doesn't specify limits. So risk managers tend to buy bare-bones "finite" liability policies, says Deborah Charron, an agent with Ft. Lauderdale, Fla.-based Seitlin Insurance & Advisory Services, an Assurex Global Partner.

"They may have had a few years where they've been lucky or what have you, but they're not willing to go back into the standard marketplace because they feel that they will be perceived as a deep pocket versus all the other nursing homes that carry the lower limits," she says.

Some of these minimally covered facilities also have learned to separate out each of their locations into its own corporate entity such as an LLC. "Thus, if you get blown out in a particular location," says Carlin at Lockton, "you can turn it over to the plaintiff."

RISK REVOLUTION

Some risk managers may be playing a high-stakes shell game with the plaintiffs' bar, but others avoid dollar-for-dollar coverage because they can. A risk management revolution--with loss prevention and claims management as its ideology--has been sweeping the industry in the last seven years.

Remember, experts credit in part this risk management revolution with inspiring the softer PL market.

Most larger publicly traded organizations have risk management skills approaching those of acute-care settings--with incident reporting, accurate and transparent recordkeeping, patient expectation management, employee safety and quality of care all prerogatives. Skilled-nursing facilities generally have learned too.

"Versus seven years ago, skilled nursing is light years ahead from a risk management perspective of where it was," says Carlin.

Yet the risk management revolution is not quite complete.

"It's still a mixed bag," says Mary Lynn Curran, vice president of clinical risk management with Thilman Filippini. Many smaller regional and mom-and-pop operations may still be traveling sideways rather than up on the learning curve.

"You have some places that they're great already when we get there," says OneBeacon's Wasta about risk management at his prospective insureds. "At the other end of the spectrum, there are facilities that recognize the value of risk management but haven't implemented any programs yet."

On the assisted and independent living side of the business, experts debate even what sort of risk management is necessary--whether facilities should view risk through a hospitality or health-care lens.

TIME'S A'WASTING

Some brokers even wonder whether the softer market will slow or reverse progress made in risk management.

"I'm just worried about, if prices drop too much, will clients take their focus off of risk," says Carlin.

While others, like Curran, suggest that the softening market could be an opportunity to develop and entrench risk management disciplines across all divisions of the business.

"In a soft market," she says, "that's when we start to build up, and we can concentrate on not just the fires, but the whole strategic approach to managing risk across the enterprise."

Time's a'wasting. Another flare-up in wrongful-death litigation, a spate of elder-abuse scandals or just an overall economic tanking could harden the market. Curran gives it three to five years.

"We on the insurance side well know that all of the corrections haven't been made, that all the operational issues that caused waves of claims and notorious judgments and settlements--it's not over," Curran says. "The tort reform--we've got it in Texas, we've got it in Florida, a better one in Texas than we have in Florida--but we don't in the rest of the country."

Where there is tort reform, say multiple sources, it might not even protect assisted and independent living facilities because under state laws they might not be not considered "medical" facilities.

And exposures are not waiting around for risk managers to catch up with them either. They're growing, emerging.

"The long-term-care industry is changing rapidly and is evolving due to the demographics--the fact that long-term-care institutions are in high demand and will become in higher demand as baby boomers, such as myself, at some point are looking at independent living, assisted living and then ultimately skilled living facilities," says Croak. "And anytime an industry changes rapidly, loss potentials come from areas that you might not have thought of."

Enjoy the softer market while you can.

MATTHEW BRODSKY is associate editor of Risk & Insurance®.

March 1, 2007

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