Aon Releases Report on Insurance Trends

VHCA (5/16/2008)

Aon Corporation released its annual report: The Long Term Care 2008 General Liability and Professional Liability Actuarial Analysis. The study found that average general liability and professional liability loss costs nationwide are at approximately $1,460 per bed after peaking at $2,030 per bed in 1998. This trend is driven by a reduction in the average severity of claims from a high of $261,000 in 1998 to $138,000 in 2007. In addition, the number of claims (frequency) has stabilized in recent years - hovering around 10.6 claims per 1,000 occupied beds after rising from 6.7 claims in 1997. The report also analyzes liability trends in 13 states, differentiating between states that have recently passed tort reform legislation, and those that have yet to do so.

"The impact of tort reform has been lasting, but it is not the only factor contributing to the stabilization of liability costs in the long term care sector," said Theresa W. Bourdon, managing director and actuary for Aon Global Risk Consulting. "Many other changes, including the withdrawal of some long term care facilities operators from expensive markets, more effective defense strategies, the use of arbitration for claims settlement and significant improvements in quality of care, have combined to help alleviate the liability crisis."

In addition to reviewing trends nationwide, the Long Term Care 2008 General Liability and Professional Liability Actuarial Analysis reviewed 13 states in detail. Liability costs dropped significantly in states that passed tort reform in the last several years. Further, both the frequency and severity of claims decreased in states that have passed tort reform. The number of claims per 1,000 occupied beds for this group peaked at 20.9 in 2002 and has since dropped to 12.2 in 2007. The average claim size plunged from $384,000 in 1998 to $104,000 in 2007.

In all other states, excluding the thirteen states profiled, the study found that loss costs peaked in 2002 and have increased slightly since 2005. The analysis of claims in all other states indicates that loss costs have risen from $630 in 1997 to $1,260 in 2007.

The Long Term Care 2008 General Liability and Professional Liability Actuarial Analysis represents data reported from 37 long term care providers operating around the country and approximately 20,300 individual non-zero claims from long term care facilities.

The complete study, including detailed analysis for 13 states, can be purchased by visiting the AHCA/NCAL website.