But how many will survive? Without good underwriting and experienced risk management practices, many will not.

Though none of the physician-owned insurers have been untouched by hard market conditions, it is a testament to sound underwriting, risk management and expert claims handling that the current array of physician-owned insurers have survived. Conversely, it is the result of poor underwriting, unbridled expansion and unfortunate management that others have disappeared or withdrawn.

Until several years ago, nursing homes liability insurance was thought to be one of the most benign of the medical-related professional liability risks, and possibly the most profitable. Rates per bed, as is often the way premiums are charged, were as low as $50-to-$100. The reason was that the typical resident was on a limited income and therefore any indemnity was relatively small.

A 2001 Conning report, Medical Malpractice Insurance: A Prescription for Chaos, found that in the medical malpractice insurance industry, nursing home combined loss ratios for insurers were about 300 percent and were expected to contribute, for some carriers, to at least 30 percent of losses.

Naturally, you wont find many carriers offering professional liability to both physicians and nursing homes. In fact, some insurers will not extend coverage to physicians who provide their services to a nursing home or other eldercare facility.

There has been such an exodus of traditional insurance carriers providing coverage to nursing homes that in some states, nursing homes may have only one or two carriers from which to choose–often with high rates or restrictive terms, and mostly on a claims-made basis. Incredibly, in some states, the best choice is to try in get into the high risk pool subsidized by the few remaining carriers in the state.

A few years ago, bed rates could go as low as $40-to-$50 a bed. Today, bed rates can be as high as $7,000 or more, depending on the location of the risk area and the claims history.

Even a nursing home with a clear claims record can average between $800 and $1,400 per bed, depending on the location of the facility.

Unlike physicians, nursing homes can't retire or switch to a different specialty. They can, however, go out of business, release their staff and move their residents to different facilities in another location–a solution that is most unappealing and regrettable.

To nursing home owners, staff professionals or medical directors who devote their time so that residents can enjoy their golden years as much as possible, the increase in premiums is distressing.

All increases are borne up front and reimbursements, if any, are sometimes not settled for a year or more. This means that activities, rehabilitation and other actions must be reduced, or even axed, to pay for insurance. Add the time, commitment and expertise required to negotiate with the few remaining insurers left in the market, and you can plainly see that there has to be another choice.

Captives and other non-traditional carriers like risk retention groups are becoming for nursing home managers and owners a very popular and strategically important option.

In 2003, for example, there were at least 11 new nursing home RRGs started in the U.S. While there are no statistics available on the number of nursing home captives, worldwide there are 4,389 captives, according to the Captive Insurance Companies Association. Of those captives, 525 are domiciled in the United States.

Many U.S. domiciles reported that health care related captives represented a significant percentage of all new entities. The District of Columbia, for example, said that about half of their captives and risk retentions groups are health care related–including nursing homes and assisted living facilities.

In whatever format you desire to purchase your professional liability coverage, risk management services, experience and underwriting are the keys to investing your premiums wisely or not–especially with nursing homes and assisted living facilities risks.

You are placing a great deal of confidence in your agent, or in the case of a direct carrier, RRG or purchasing group, their ability to finance your risk and control losses. You want them both to be around for a long time.

Your prospective carrier or RRG needs to have the resources, experience and staff to advise you on how to mitigate the risk of loss and keep future premiums low. Perhaps most importantly, your agent and his firm need to know how to advise you on the different options. Low prices in the first few years may lead to bigger obligations later.

Christopher L. Kramer is senior vice president for Neace Lukens Management Services in Cleveland, Ohio, and Washington, D.C. He can be reached at [email protected].

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 12, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.