A new Florida risk retention group offers
stable coverage and top-flight risk management
By Elisabeth Boone, CPCU
"State by state, we're building a national presence to give our independent agents and brokers the ability to better serve their clients."
--Sanford Elsass, President/CEO, UUMC
Want to see a grown underwriter cry? Submit an application for liability insurance for a nursing home in Florida, and watch the tears start to flow. With its ever-growing senior population and a regulatory environment that at best can be described as challenging, the Sunshine State is at the bottom of everyone's list when it comes to writing liability coverage on long term care facilities.
That's the bad news. The good news is that the Florida Long-Term Care Risk Retention Group (LTCRRG), formed by a unit of giant U.S. RE Companies, recently opened its doors and stands ready to provide a stable market for this troubled line of business. LTCRRG will make general and professional liability insurance available to skilled nursing, assisted living, and independent living facilities in Florida.
Experience counts
The new RRG not only offers desperately needed coverage to a market in crisis, but also brings to the table impressive depth and breadth of expertise in this challenging line of business. Sanford Elsass is president and chief executive officer of UUMC (Uni-Ter Underwriting Management Corporation, a unit of U.S. RE). Operating as a managing underwriting/managing general agency, UUMC currently writes liability insurance for independent living, assisted living, and skilled nursing facilities in 22 states and is expanding its network of retail agents in those states. UUMC also is involved in captive formation and risk management for health care facilities. Elsass also is president and chief executive officer of U.S. RE Agencies, Inc., a unit of U.S. RE Companies that is responsible for group operations in the wholesale sector. U.S. RE Agencies serves as the internal parent company for U.S. RE Group subsidiaries operating as managing general underwriting companies, managing general agencies, program management companies, and wholesale brokers.
Jim Martin (right), president of Uni-Ter Claims Services, discusses strategy with (center) Jeri Lambert, claims coordinator; and Sara Berberian, claims analyst.
Heading up underwriting operations for the new RRG is Steven Rupp, who joined the organization last fall with a strong background in health care insurance on both the brokerage and company sides. He previously was underwriting manager for the southeastern region of PHICO, handling hospitals, physicians, and nursing homes. Before that Rupp was an underwriting manager with AIG Healthcare.
Uni-Ter Claims Services Corporation, a TPA for professional liability claims that will handle claims for the new RRG, is under the able leadership of James Martin, who joined the organization in 2000. Martin is a malpractice claims specialist with 37 years of experience in claims and risk management for health care facilities, including complex casualty claims. He has held senior claims management positions with North Star Casualty Insurance Company of Minneapolis; the Washington Casualty/Washington Hospital Fund of Bellevue, Washington; and the Northern Group, Inc., of Norcross, Georgia.
Working with Martin on the claims side is Kathi Cavallo, a registered nurse for 25 years who has a strong background in health care risk management. She previously served as corporate risk manager for Extendicare Health Services, a major national nursing home chain, and was instrumental in developing a general liability/professional liability product, Medmarc, through the chain's self-insurer. Cavallo holds certifications in risk management and legal consulting and is responsible for reviewing medical records and investigating claims.
Tackling tough problems
Across the country, the market for long term care liability coverage is in deep trouble. In a hard market beset by economic woes and the uncertainties of war, most carriers simply don't want to take on the challenges of this beleaguered industry. The people at U.S. RE have a different view. "Our core business is reinsurance brokerage, and our mission is to solve problems," Elsass says. "In a hard market, we provide a valuable service to MGAs and MGUs because the fronting carriers want an MGA to put its own skin in the game, and many of them don't have balance sheets that can collateralize that kind of exposure. We look at the most difficult classes of business and use our intellectual capital to help solve those problems. That's what led us to the long term care business. We looked at the long term care market nationally and saw very few remaining providers of high-quality paper. The finite risk policies that are available simply amount to a trading of dollars. We decided we could be a viable entity for agents not only in Florida but other states to help them solve the problem of risk transfer for their long term care clients. We want to give the agent choices. We offer risk transfer in 30 states through our exclusive program with Arch Specialty Insurance Company and self-insurance facilitation through U.S. RE's captive management company in Bermuda. Thus we can provide combination self-insurance and risk transfer options, coupled with risk management and claims handling expertise. State by state, we're building a national presence to give our independent agents and brokers the ability to better serve their clients."
Offering an underwriter's view of the Florida long term care market is Steven Rupp. "In the early to mid-1990s, nursing home liability, as well as hospital professional liability, was pretty profitable business," he observes. "Back then, carriers were writing nursing homes at very inexpensive rates, sometimes below $100 a bed." The situation changed when a Tampa law firm began to bring suits against nursing homes and win large judgments. Based on its success in Florida, the law firm opened offices in other states. "That was the tidal wave that brought claims severity to where it is today, in both medical malpractice and nursing home liability," Rupp comments. "As the firm expanded into Texas, Arkansas, Alabama, and Mississippi, and other firms followed suit, those states became troubled venues for carriers. Most companies were writing on an admitted basis, and they couldn't get approval for rate increases quickly enough, so a lot of them are no longer in business," he explains. "The business moved into the excess-surplus market, where it's easier to achieve rate adequacy. The primary medical malpractice carriers, and the reinsurers backing them, all but disappeared from the market."
In recent years, claims executive Jim Martin observes, the Florida legislature has enacted tort reform measures that limit punitive damages and has reduced the statute of limitations from four years to two. What's more, he notes, attorneys can no longer be paid fees on top of the contingency fees they receive from court awards. "There has been some progress, but the size of the settlements and verdicts is still too high to make this business insurable in the traditional environment," Martin says. "I don't remember the last time we received a demand on any claim that was less than $1 million, and they're often in multiples of millions."
Kathi Cavallo (right), vice president of clinical services, speaks with Kimberly Johnson, a clinical nurse underwriter for Uni-Ter.
In January of last year, Rupp says, the Florida legislature passed a law mandating that long term care facilities carry liability coverage. "That stirred up some controversy because the legislature took this action without ensuring there was a viable insurance market," he remarks. "Some insurers started writing general liability-only policies. At about midyear, the legislature amended the law to cover professional as well as general liability. Insurers began to issue combined GL/PL policies with limits of $50,000--the 'finite risk' policies Sandy Elsass mentioned earlier. Typically the premium for that limit is $60,000 or $70,000. If a facility's claims total $50,000, the insurer sends a cancellation notice and informs the insurance department that the facility has no coverage." Some owners of long term care facilities bought these policies because they believed they had no choice, Rupp continues, and other facilities chose not to buy any insurance. "They clearly wanted something different, which led us to form the risk retention group."
The Florida LTCRRG was in the process of formation for two years, Elsass explains. "U.S. RE was well known to the Florida insurance commissioner, Tom Gallagher, because it had invested in two JUA 'takeout' companies that were formed to assume business that had been written in the state joint underwriting association," he says.
When it became clear that the long term care market was in crisis, Tal Piccione, chairman and CEO of U.S. RE, suggested to the commissioner that the state put together an RRG with assistance from U.S. RE. "We felt confident in sponsoring this venture because of our group's expertise in forming risk takers to tackle difficult classes of business," Piccione says. "A key reason is the vertical integration of various entities within our family of companies, such as reinsurance brokering, underwriting and captive management, and merchant banking tied to venture capital investments. Also, our company's general counsel, Mike Joye, played a formative role in creating the federal Risk Retention Act of 1986, so we were familiar with and appreciative of the RRG approach. Finally," Piccione remarks, "we were reassured by the respect we have earned from important regulators and legislative leaders throughout the country."
A key role in establishing the RRG was played by risk manager Kathi Cavallo. "I reviewed our claims experience under the Medmarc and Extendicare programs and created a risk management protocol for nursing homes. The insurance department understood how it would work, and they decided to adopt it for the state risk retention group. Our policy includes risk management protocols that insureds must implement if they want to be part of the RRG."
Members are owners
LTCRRG is a stock insurance company created under the Federal Risk Retention Act of 1986 and was granted a certificate of authority by the Florida insurance department on January 30 of this year. The RRG is capitalized with an interest-free surplus note of $6 million from the Florida Agency for Health Care Administration. The note will be repaid by the RRG from capital contributions of shareholders and profitable underwriting results. Initial capitalization exceeds the minimum amount of $5 million required by the Florida insurance department to launch operations. Under the law, all insured facilities must hold stock in the RRG. As shareholders, they will make equity contributions to capitalize the RRG. Skilled nursing facilities will invest $780 per insured bed, to be paid in declining installments over three years. Assisted living facilities will be eligible for coverage with a capital contribution of $212 per bed, and independent living facilities will contribute $148 per bed, to be paid over three years in declining installments.
(From left) Steve Rupp, senior vice president, meets with Jeanett Tuider, underwriting coordinator, and Sharon Lanier, senior underwriter.
The RRG will be restricted to writing general and professional liability coverage on a claims-made form. Limits will be $250,000 per occurrence with an aggregate of $500,000. The average premium for skilled nursing facilities will be $1,049 per bed for the first year, increasing to $1,449 in the third year and thereafter. The assisted living and independent living facilities will pay lower premiums based on lower limits of $100,000/$200,000 or $100,000/$300,000.
The group expects to cover facilities containing 11,000 beds in its first year of operation, of which 80% would be assisted living facilities and 20% skilled nursing facilities. "Our goal is to write approximately $5.7 million in premium the first year," Rupp says. "In Florida there are 734 skilled nursing facilities, which equates to about 83,000 beds, and 2,083 assisted living facilities. That's a large universe of people who need coverage."
Uni-Ter Underwriting Management Corporation (UUMC), a subsidiary of U.S. RE that arranges insurance for long term care facilities in 31 states, organized the RRG in cooperation with Florida state agencies and operators of LTC facilities. The RRG will be owned by its policyholders and operated by UUMC under a management contract. Claims will be handled by Uni-Ter Claims Services Corporation, a UUMC affiliate that serves as a third-party administrator for professional liability claims. Back-office operations will be conducted by New Office Business Systems Managers, Inc., of Rockledge, Florida. U.S. RE Corporation will provide reinsurance brokerage services.
A team approach
The experts who staff the new RRG work together closely in all aspects of its operation, Elsass notes. "We work as a team: underwriting, claims, and risk management. When a claim is presented, we are prepared."
A total commitment to risk management is essential to the success of the RRG, Elsass remarks. "The latest equipment for long term care residents--alarm systems, beds, wheelchairs--goes only so far in preventing injuries and claims," he points out. "The bottom line is, nursing home owners are strapped for cash. They are not getting reimbursed by Medicare or Medicaid for capital items--and assisted living facilities aren't getting reimbursements for anything. We take a back to basics approach. The great thing about Kathi's proposal to the Florida insurance department is that it focuses on implementing procedures that don't require capital investment."
Strict underwriting is key
Maintaining a stable market for long term care facilities requires strict adherence to sound underwriting principles, Rupp comments. Applicants must complete a detailed survey and quality indicator reports. "We use a team underwriting approach," he explains. "Our staff nurses, under Kathi's direction, do a clinical review of claims to determine whether the applicant is providing quality care. Once we approve the application, we provide a premium quotation." Some applicants, he observes, don't make the cut. "Assisted living facilities are a challenge because of their patient mix; we have to be sure they are not housing residents who need a higher level of care than the facility is equipped to provide."
Sanford Elsass and Officer Manager Linda Tsuhlares.
These assisted living facilities present a new challenge for the fledgling RRG. In recent years they have become a popular option for seniors who aren't ready for full nursing home care yet want the security of moderate assistance while living in private apartments. The strict laws and regulations that govern nursing home operators don't apply to the owners of assisted living facilities. "Staffing requirements are minimal; in fact, some people use their private homes to provide assisted living services to a few residents," Cavallo observes.
The clinical underwriting process, Cavallo says, is an exhaustive review of the applicant's operation and history. "We look at the clinical practice in the facility: acuity of care, types of patients, staffing patterns, policies and procedures, and how the facility actually provides care to residents. We review the applicant's loss history as well as reports from state investigative agencies. This information helps us form a clear picture of the risk. If we decide to write the risk, we already know what kinds of problems it's likely to have, so we have a sound basis for creating a risk management program for that facility."
Risk management is ongoing
The risk management process doesn't stop there, Cavallo notes. "Thirty days after we have insured the risk, we have a teleconference with the designated risk manager," she explains. "Each insured is required to designate a staff member to take charge of the risk management program. In fact, based on our recommendations, the state of Florida has mandated that every nursing home have a designated risk manager." The teleconference, Cavallo says, allows both her staff and the insured to identify problems and create a plan to correct them. Subsequent calls are made to ascertain whether the facility is on track with implementing the corrective actions."
Another key piece of the risk management process, Cavallo says, is on-site audits. "Our insureds are aware that we may be in the building. We encourage them not to view these visits as adversarial; we're there to help them," she emphasizes. Insureds who have risk management questions can call a toll-free number and speak with a member of Cavallo's staff. "We want to develop a productive working relationship with our insureds, rather than being seen as the 'bad guys,'" she says. RRG members also will receive regular newsletters with columns written by experts and a question and answer feature. Plans also call for periodic seminars in different parts of the state so members can get the latest information on matters that affect their operations.
Yet another risk management tool is a computerized incident reporting system, Cavallo says. "The member enters the incident report into the system and sends it to us via a password-protected site on the Internet. This allows us to track trends and patterns so we can help insureds improve their risk management programs," she explains. "We benefit by having early notification of claims." Adds Martin: "If something happens at an insured facility that might give rise to a claim, we want to know about it. We want a phone call or a copy of the record requested by a third party so we can help the insured deal with the problem before it becomes a lawsuit or a claim. This way, we know what the case is about, the issues involved, and the approximate value of the case before it turns into a claim. As a result, we've been able to obtain some very favorable settlements for nursing homes before the case would even be recognized by most insurance carriers."
The Florida LTCRRG, Elsass emphasizes, works exclusively with independent agents and brokers. "Because such a high premium is put on the risk management aspect of this class, we want to deal only with agents who have an in-depth understanding of the long term care business," Elsass says. "We've appointed three agents in the state who already have a significant amount of this business. We've also designated two wholesalers who can be contacted through Steve Rupp. The wholesaler will guide the agent through the subscription and application process."
The Florida LTCRRG seems firmly poised to meet the challenges of the state's troubled market for long term care insurance. "If the Florida RRG is successful, we want to expand into additional states where there is a need, like Texas, Mississippi, Alabama, and Arkansas," Elsass says. The desired results, of course, are a stable market with affordable rates and effective risk management. As an experienced health care provider, Kathi Cavallo focuses on the best possible outcome. "I think if everything goes as we've planned and the risk management protocols are followed, we're going to see an improvement in the quality of care, and nothing is more important." *
For more information:
Uni-Ter Underwriting Management Corporation
Web site: www.uni-ter.com
Contact: Steven Rupp
Phone: (678) 781-2374
E-mail: srupp@uni-ter.com