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In Brief: Nursing Home Liability Insurance: An Overview

This In Brief summarizes the findings of the AARP Public Policy Institute Issue Paper, Nursing Home Liability Insurance: An Overview.1 Liability insurance helps to cover costs incurred because of injuries or damages and is an important part of the responsible operation of any business, including a nursing home. In recent years, nursing homes in some states have experienced dramatic increases in the cost of liability insurance. Many insurers have stopped offering coverage altogether in some states.

The Issue Paper reviews the limited literature about the nature and extent of problems with the cost and availability of nursing home liability insurance, the causes of these problems, and their proposed solutions. Several of the studies available were funded by nursing homes, consumer groups, or attorneys with a financial stake in the issue or a particular political perspective and were not peer-reviewed before publication, or had a sample was limited to a small number of providers in one geographic area or one segment of the industry. AARP also contracted with Weiss Ratings, Inc., an independent insurance company rating agency, to contact nursing home liability insurers, insurance brokers, and two state departments of insurance to obtain their perspectives. Key findings are:

The nature and extent of the problems

  • A few studies have reported dramatic increases in nursing home liability insurance premiums among some segments of the nursing home industry, but results may not represent the experience of the typical nursing home.
  • Some studies found large decreases in coverage that were large on average but concentrated among a small number of providers.
  • Many insurers have stopped offering nursing home liability insurance coverage in certain states, particularly in the South.
  • Historically, insurers were not selective in writing nursing home liability insurance, in part because this insurance accounted for only a small portion of the income of the companies that provided it. Studies suggest that insurers have become more selective in underwriting, but premiums have also increased for nursing homes that provide good quality care and have no history of paid claims.

The causes of the problems

  • In recent years changes in some state laws have made it less difficult for nursing home residents to sue and collect compensation for harm caused by substandard care. Recent studies have found large increases in the frequency of lawsuits and size of claims in the segments of the nursing home industry explored. This increase in frequency and size of claims has been driven by a small number of nursing home providers with multiple claims and a few extraordinarily large claims. In the few studies that have examined the relationship between litigation and the cost and availability of liability insurance, the results have been mixed.
  • Several factors in the broader insurance market have also contributed to current problems:
    • the property/casualty insurance cycle;
    • severe premium cuts during the 1990s;
    • lower returns on insurers ' investment income;
    • more claims and payouts and perceived variability and predictability of claims;
    • losses from claims resulting from the September 11, 2001 terrorist attacks; and
    • insurers ' business decisions.

Proposed solutions

The Issue Paper examined six proposed solutions to the problems of cost and availability of nursing home liability insurance:

  • Limits on residents ' right to sue-Some studies suggest that certain types of restrictions on lawsuits, referred to as tort reform, can improve the availability and affordability of liability insurance, while other studies suggest that tort reforms are not effective. Additional research is needed to assess the impact of these restrictions on quality of care and access to compensation for residents who are harmed, and state courts have found some restrictions to be unconstitutional.
  • Strengthened enforcement of nursing home quality standards-Some studies suggest that nursing homes with poorer quality are more likely to be sued and are likely to pay higher premiums for liability insurance. Moreover, strengthened enforcement may improve quality of care and reduce the need for lawsuits, thereby lowering insurance premiums.
  • Risk management-Reports from nursing home liability insurance companies and nursing homes indicate that risk management programs in nursing homes can make liability insurance more available and affordable. However, these programs can be expensive.
  • Experience ratings-An experience rating system rates nursing homes on the basis of risk to the insurer, including whether it has a strong risk management program. Using such experience ratings can reward good providers with lower premiums and hold providers with a history of poor care accountable by charging them higher premiums.
  • Alternatives to traditional insurance-Alternatives to traditional insurance, such as self-insurance, group self-insurance, and joint underwriting agreements, have made insurance more available and affordable for many nursing homes, but they may not be available for all providers.
  • Strengthened regulation of the insurance industry-While insurers contend that increases in premiums are needed to cover losses, consumer groups have argued that inadequate oversight allows insurers to overcharge customers. Additional research is needed to examine the role of the insurance industry in the current crisis.


Two of the proposed solutions, namely risk management and increased oversight of nursing homes, may improve quality of care for nursing home residents. In addition, experience rating systems reward good providers with lower premiums and hold providers with a history of poor care accountable by charging them higher premiums. These merit attention as first steps in making liability insurance more affordable and available. Alternative forms of insurance may also offer solutions for many, if not all, nursing homes. These solutions should be given priority over litigation limits, which may have harmful consequences on quality of care and access to compensation for injured residents and their families.

Additional, rigorous research would be useful to better understand the effects of the proposed solutions on availability and affordability of long-term care liability insurance, as well as their effects on quality of care and access to compensation.


  1. AARP Public Policy Institute Issue Paper #2003-08 (July 2003)

Written by Bernadette Wright, Ph.D., AARP Public Policy Institute
July 2003
©2003 AARP
All rights are reserved and content may be reproduced, downloaded, disseminated, or transferred, for single use, or by nonprofit organizations for educational purposes, if correct attribution is made to AARP.
Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049

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