Some operators of nursing homes are paying higher reinsurance costs – a more litigious environment post Covid being among major factors – while grappling with uncertainty on how claims could impact their businesses.
And this is especially true for one area of insurance for nursing homes – professional liability insurance. While not required by most state laws, many nursing home operators still carry professional liability insurance to protect their nurses and other professional staff in the event of an incident.
Some insurance companies, including brokerage CAC Specialty, have seen reinsurance costs for primary carriers increase 50% or more in this area. This jump is mostly due to higher inflation, rising basic costs and growing verdicts on professional liability claims coming down the line as well as ongoing staffing issues.
Add to this mix new professional liability insurance carriers – there has been more interest in writing new business in the space over the last 6 to 12 months, experts said.
“There are new carriers in the marketplace right now, replacing some that have pulled out. It’s a cyclical industry – carriers get in, they get burned, they claim a lot of money and they get out,” said David Thurber, senior vice president of legal, senior practice at CAC Specialty. “New carriers don’t have those legacy risks, they ride the rails for a while until it gets too tough for them.”
Stu Almer, president and CEO of Gurwin Healthcare System, said he has seen the cost of all insurances increasing during Covid, but it’s too soon to tell what kind of impact any one factor will have on future pricing, renewals or otherwise.
“If there’s an impact on an [insurance] claim, that’s usually felt further down the road,” he said. “It’s a logical deduction that we will be impacted by this.”
Underwriters form criteria questions
Other insurance companies are saying their understanding of the skilled nursing landscape is generally solid at this point in the pandemic. But, SNF providers still need to talk to underwriters about how they’re managing and using staffing agencies – and really share their plan for incorporating agency staff within the broader picture of care and services provided.
Another huge factor underwriters take into account is accessibility, said Tara Clayton, senior vice president of senior living and long-term care industry practice at Marsh.
“There’s a lot of questions that the underwriters ask when going into renewals for professional liability,” said Clayton. “We know staffing agencies are being used. [Underwriters] want to understand how they are being used, how [operators are] managing the use of staffing agencies; there could be claims that come from staffing agency usage.”
Carl Swan, executive vice president of CAC Specialty, said such questions can be nuanced.
“Underwriters are all different. Although they have their general way of doing business, they’re also humans,” he said. “How they do their business underwriting, there’s an art and a science.”
In his conversations with professional liability underwriters, he hasn’t seen them overly concerned with agency use, but some applications for coverage have such questions baked into criteria.
“I believe it’s being evaluated by some [professional liability and general liability] carriers and underwriters, but I personally haven’t felt that that’s a huge focus of [professional liability] underwriters,” Swan noted.
Of course, the staffing crisis has led to issues with access to care. And, insurance carriers are paying attention to nursing home closures, and how there’s a corollary effect to hospitals who don’t have anywhere to discharge their patients. The American Health Care Association just put out a report on accessibility, or lack thereof.
From 2020 to the present, 579 nursing homes have closed, and more than 21,000 residents have been displaced by closures. Moreover, 30 additional counties have become what AHCA calls “nursing home deserts.” That means 45,217 fewer nursing home beds were available to prospective residents due to downsizing.
Questions asked by underwriters to determine renewals are based on observations of the industry’s current challenges and persistent trends. Providers “absolutely” need to be able to fill in the gaps for the insurance underwriters, Clayton said.
Other important underwriting questions, she said, involve infection prevention and control. “We see many more questions, more specific questions, in the area of infection control and emergency preparedness,” she added.
Meanwhile, an unknown for underwriters is the potential minimum staffing mandate, and something the insurance industry is “very closely watching.”
Being transparent about agency usage
So long as operators are conveying to insurance companies what they’re doing to manage and mitigate agency use, they shouldn’t expect any significant change to procuring professional liability insurance, added Clayton.
For example, rural providers still generally have higher agency usage because of a broad need in these markets, she noted. While that’s the reality many operators in these markets are facing, that doesn’t mean they shouldn’t also be training agency staff in the same way they educate in-house workers.
“We work closely with our clients and its providers, making sure that those processes are in place, providing that continuity of care when staffing agencies are coming in,” said Clayton. “I think as long as the underwriters and carriers see that picture, I don’t really see a significant change.”
Thurber, on the other hand, said he’s seeing property carriers experiencing “huge” reinsurance costs, along with costs of agency labor and cost of product. This is on top of the cyclical nature of professional liability insurance he mentioned.
“The cost for that reinsurance has gone up 50% or more to the primary carriers and they just pass that on to the business sector,” added Thurber. “It’s a trickle down effect. The reinsurance people jack their rates up because of their losses, the primary carriers absorb that cost and increase their rates to the business sector.”
Insurance carriers and underwriters are looking for information to determine if a partnership is right for them – it plays a role in how that carrier wants to proceed in future as well, for an existing relationship.
It’s a way for insurance carriers to prove they aren’t “putting their head in the sand,” she said.
Agency use as permanent fixture
Skilled Nursing News has heard that the sector has a greater acceptance of agency usage. Instead of ridding their facilities of agency workers completely, some SNFs are now saying these temp workers will remain a part of the staffing makeup at least for the next couple of years, as the industry continues to face a staffing crisis.
“It’s understandable that some providers are going to have agency in certain locations. I don’t think that’s unknown to any of the carriers in the space,” said Clayton. “This isn’t a secret, that we do have a workforce crisis going on. It’s all hands on deck on pushing for reforms and advocating for solutions to address that.”
Given this shift in thinking on agency use, Clayton said professional liability insurance is more important than ever. This is especially true with the claim environment the industry is in.
Thurber is seeing verdicts and judgments come down too for professional liability claims.
“The frequency of [professional liability] claims continues almost unabated. With the verdicts, the fear of taking a case to trial is real. Clients and carriers want to resolve a claim earlier … they’re fearful of the runaway verdict” added Thurber.
Settling claims earlier, he said, is tied to headline risk for the skilled nursing space. The public – and jury pools – remember vividly that nursing homes were oftentimes at the center of Covid outbreaks at the height of the pandemic.
Coupled with more insurance claims is a rise in arbitration, he said, even as Congress and state legislators try to curb its use.
In some states, there’s a minimum professional liability insurance requirement that operators need to carry, noted Clayton.
“We’ve not seen a move away from it. If anything, it’s the opposite; making sure you have sufficient professional liability in place,” she said.
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