With national and state efforts at altering medical liability rules once again failing to hurdle the predictable political roadblocks and the commercial insurance marketplace struggling to provide the coverages so many long-term care (LTC) facilities require at a price they can afford, many such facilities are seeking out alternative mechanisms to manage their risks.
A Congressional effort to limit malpractice awards was finally killed on July 9 after garnering only 49 Senate votes, 11 short of the 60 necessary to overcome a Democratic filibuster. A special session of the Florida Legislature, meanwhile, ended in June without a compromise on medical liability changes there. Gov. Jeb Bush said he would reconvene another special session but also said both the Florida House and Senate bills fell short of the reforms he felt were necessary.
Still, Florida politicians have shown they are cognizant of the crisis in attaining health-care liability insurance, including general liability and professional liability at LTC facilities, whether they provide assisted living or skilled nursing. In 2002, the Florida Legislature authorized the state’s Agency for Health Care Administration (FAHCA) to capitalize LTC Risk Retention Group (RRG) Inc. with an interest-free, $6 million surplus note.
Licensed Jan. 30 by the Florida Office of Insurance Regulation, LTC RRG is managed and administered by Atlanta-based U.S. Re Agencies Inc., a subsidiary of New York City reinsurance brokerage U.S. Re Cos. Inc.
So far, 180 different Florida LTC facilities accounting for $2 million in premium volume have joined the new RRG, according to U.S. Re Agencies president Sanford D. Elsass. The RRG may become a model for other states around the country as they struggle to unknot the problem of insuring LTC facilities in a hard market before the Baby Boomers retire in huge numbers.
Why is an RRG necessary?
“Given the conditions of the market, especially in the health-care arena, obtaining coverage for certain types of liability is very difficult,” said Wendy Fisher, chair of the National Risk Retention Association (NRRA) and corporate secretary of regulatory affairs at Colorado-based National Home Insurance Co.
“It’s hard to get coverage and difficult to get coverage for a reasonable price,” she added. “A risk retention group is a good alternative mechanism for that. Health facilities can pool their own risk together in a far more economical manner.”
Elsass attributed the dearth of affordable coverage from admitted and non-admitted carriers in Florida to “the influence of trial lawyers on court cases. Insurance companies have found it’s an impossible place to make a profit because they were offering $1 million and $3 million limits and prices that were too low. Once they increased the prices to the level they needed to provide stability in the market and for their balance sheets, prices were too high.
“The carriers that exited the commercial marketplace led with their checks to get out,” Elsass added. “They encouraged trial lawyers to get them. Exiting insurers were writing $1 million checks. Secondly, the hard market obviously has driven up the costs because the commercial market players who lost a lot of money in this industry now have a chance to get some of it back. Until there’s tort reform, these conditions will continue.”
To become licensed as an LTC in Florida, the state requires only a finite $25,000 liability policy, for which facilities would pay $32,500, meaning “there’s no real risk transfer,” according to Elsass.
“That remains today as an issue,” he said. “There’s no protection for the clients of the homes, or the public who come to visit the homes, or the assets of the homes themselves … There was no real insurance to provide cover for anybody or anything.”
As required by the Federal Risk Retention Act of 1981, all members of LTC RRG are stockholders in it as well. It offers a $100,000/$300,000 limit, or $250,000/ $500,000, or $500,000/$500,000 for those facilities which might require that much for “banking or lending requirements,” Elsass said.
Looking to succeed
How can RRGs succeed where the commercial insurance marketplace has failed?
“They’re basically their own risks,” NRRA’s Fisher said. “They’re pooling their own risks together. A lot of commercial carriers don’t want to cover these risks, just because of the hardness of the insurance market.”
Elsass said that in its management of the RRG, U.S. Re has some advantages over traditional carriers. First, the insureds are “committed buyers because they own the stock and its their company.”
Second, “extensive, mandatory risk management protocols” including a customized incident-reporting software program and “clinical nurses on staff who are tracking and trending events, working closely with each of the facilities.”
For example, each member facility will have a representative on the RRG’s Quality Care Council to meet quarterly and discuss risk-management issues in an online chat room.
A third advantage, Elsass boasted, will be in claims handling. U.S. Re Agencies’ third party administrator, Uni-Ter Claims Services (a subsidiary), “has a national reputation of proven capability of fighting successfully against the trial lawyers in frivolous claims, with demands of seven figures. Trial attorneys don’t like our people or our claims handling operation. We’re professional, we’re tough and we represent our clients very thoroughly.”
In spite of its differing structure, LTC RRG is regulated by Florida just like any other insurance company—it must file a yellow book and is subject to market-conduct surveys. U.S. Re Agencies is handling every aspect of the RRG’s administration, from claims handling and underwriting to risk management and issuing policies.
Agents and brokers key to distribution
LTC RRG is being distributed primarily through two brokers—Daytona Beach-based Brown & Brown Inc. and Delray Beach-based Plastridge Agency Inc.—both experts on working with LTC facilities, according to Elsass.
Elsass was confident that U.S. Re Agencies’ success in Florida could be repeated in other states. He said they’ve already had meetings with Texas Insurance Commissioner Jose Montemayor as well as with state associations in Washington and Oregon, who asked that a proposal for an LTC RRG to operate in eight Northwestern states.
“We have become experts on the subject and can help them avoid a lot of the pratfalls of putting something like this together,” Elsass said.
As far as working with agents and brokers, Elsass said U.S. Re is looking for expertise in dealing with LTC facilities.
“We believe agents and brokers are much closer to their clients and get us better information than we could get ourselves,” he said.
In the meantime, U.S. Re holds the pen for Arch Insurance Group for up to eight nursing home facilities in 30 states.
Elsass, who founded the Arbor Group, bought out wholesale insurance giant Montgomery & Collins, and began his career with Newton, Mass.-based agency MacIntyre, Fay & Thayer, said he has found a long-term home at U.S. Re.
“U.S. Re is the most exciting place I’ve been in the last 20 years,” he said. “The plan is this is my last stop. I’m very excited and stimulated by the variety of businesses … Our whole focus is we’re a vertical integrator of revenues. Everything we get involved will give us three pieces of three different feeds off the same premium dollar. If we have an MGA, we make money running it as a business, we make money as reinsurer, then some day we’ll have one of our Florida companies become a commercial underwriter across the country—a place for our MGAs to place fronting and risk-bearing paper.”
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