The senior population continues growing at a time when the insurance market for senior living operations is under strain and both trends are expected to continue.
The population of Americans over age 80 will double, from 6 million to 12 million, in the next two decades, according to statistics from Harvard's Joint Center for Housing Studies, and by 2035, one out of three U.S. households will be headed by someone over 65.
Some of these Americans will find themselves in need of senior living facilities equipped to provide health services ranging from minor services received in independent living facilities to acute care in skilled nursing facilities.
But senior living facility operators are facing challenges when it comes to insurance. Experts working in the sector note that professional liability and general liability premiums have risen in the past year or two and there's no end in sight. Property and commercial auto rates are increasing steadily.
A handful of carriers has left the senior living market and the industry overall is experiencing consolidation. At the same time, the industry is facing continued labor shortages while becoming a target of the plaintiff's bar.
To say the market is challenging is an "understatement," according to John Atkinson, managing director, Willis Towers Watson.
"It's a rapidly hardening market for the general liability and professional liability lines of business," he elaborated. "We've seen an exit from the marketplace of key carriers. We've seen profitability issues driving venue constrictions and rate. We've seen carriers reducing their excess capacity. We've seen retentions going up and the carriers really trying to focus in on what they view as a rapidly deteriorating litigation environment."
According to M. Brant Watson, senior vice president, at Heffernan Insurance Brokers, even the very best accounts with no loss history are seeing pricing increases at minimum of 12% to 15% overall. "But in the worst cases people owning and operating assisted living are looking at premiums doubled and tripled," Watson said.
It's just about every line of coverage, too. "For the four major coverage lines (general liability, professional liability, property and auto) there is a lot of pain right now," he said, adding that the only major coverage line that seems to be stable and very competitive is workers' compensation.
"We're seeing rates continue to increase, retentions and deductibles are higher," said Hoppy Stauffer, senior vice president, Worldwide Facilities.
As an example of drastic change, she cites a market that used to offer a package for senior living facilities but withdrew. Several other markets have followed in similar ways, she said, while others will only write professional liability and general liability with a minimum self-insured retention (SIR) of $100,000 or more. "That's a drastic change," she said. Previously she would find package policies for smaller facilities with deductibles as low as $5,000.
Stauffer says she is also seeing reductions in limits for sexual abuse coverage. "It's not all the time, but for some facilities they may have had $1 million/$1 million in coverage but are seeing a reduction in maximum coverage at renewals to maybe $100,000/$300,000."
She is also worried additional markets may exit the senior living space. Several agents and brokers shared their concerns with Insurance Journal about the number of carriers that have drastically reduced or altered their underwriting appetite for senior living risks in the past few years.
Smaller facilities are perhaps facing the biggest hurdles today, according to brokers.
Carriers prefer the larger risks that are willing and able to share more of the risk, according to Worldwide Facilities' Stauffer. They want to secure "more meat in their premium to offset the losses," she said. "That's smart business for them, but for us brokers, not every client has the ability to do that."
She said smaller senior living group homes are not typically able to secure up to $100,000 in SIR yet they are required to buy insurance. "So, it's that 'Catch 22' that we're seeing right now," she said.
Dana Kocen, a 14-year veteran healthcare insurance broker, has had similar experience with smaller risks.
"When I first started with Burns & Wilcox four years ago, we had a few markets out there who specialized within the smaller facilities world. We were able to place those," she said. "But as of right now, for example, we only have maybe two markets who are looking at the smaller facilities, and it's getting very, very hard to place them."
'It's a rapidly hardening market for the general liability and professional liability lines of business.'
Kocen says smaller risks with any claim activity should expect to see premiums triple or more.
"The smaller risk, typically 50 beds or less, where businesses are just trying to make a living, potentially if they have one claim, markets won't even take a look at the risk, or they'll increase the premium from maybe an expiring premium of $6,000 to almost $30,000," Kocen said. "We've had a couple of those instances, due to a market completely re-underwriting their book assessment, and they're taking huge increases on the small businesses."
Brian Lindahl, executive vice president at AssuredPartners, who has been helping senior living facilities secure insurance for more than 30 years, is stunned by the market transformation.
"I haven't really seen anything change as quickly as this market since around 2000-2001 when we went into a very hard marketplace nationally, particularly for nursing homes and to some extent for assisted living as well," said Lindahl.
While the rising rates are an issue, the real challenge is that markets have exited this space, he says.
"A lot of them just feel like there's no way to make money anymore by writing this insurance so they literally pulled out," he said. In a typical year, senior living agents and brokers could count on at least a dozen or more insurance companies to go to. "I'd say right now at Assured Partners, we probably are down to maybe five companies and my guess is it'll shrink from there even more," he said. "There's just not much competition and you've kind of got to take what you get."
Claims and Venues
Claim outcomes in the senior living market are similar across the country and at all levels of services, according to Blaine Thomas, vice president, industry leader for aging services at CNA, one of the largest providers of insurance to the aging services industry.
There is little differentiation between not-for-profit and for-profit facilities or by setting type, such as skilled nursing care, assisted living or independent living,
CNA has seen claims double in some sectors of the industry while average indemnity payments have increased by 60%.
Legal complaints against senior facilities are part of the problem and they are spreading, according to participants in the market.
Kentucky is by far the worst state in terms of senior living litigation, according to Willis Towers Watson's Atkinson. "Right now, carriers are really scrutinizing whether or not they want to do business in Kentucky or not," he said.
Kentucky has a "unique litigation environment" and the patterns of settlements are much higher, Atkinson said. Also, the jury pool tends to be pretty aggressive so verdicts in the state have been really tough. "Settlements are going for higher values and the plaintiff's bar in Kentucky is pretty organized so it's challenging."
He said California and Florida also continue to be difficult legal venues for senior living litigation, while New Mexico is "kind of a new in terms of a difficult venue," along with New York and Oklahoma.
Lindahl says that even the very best insureds fair poorly with insurance in these tough venues. "You can take the best senior living facility community in the world and put it in one of those venues and it could still perform poorly just because of the environment, because of the laws," he added.
Lindahl says another driver of today's market is the unpredictable nature of claims in the sector.
"Sometimes an insurance company might think, 'OK, well they did something wrong. This is probably a $50,000 claim.' Then maybe it ends up being a $1 million claim. And then other times the same claim ends up being a $50,000 claim," he said. "When the insurance carriers have a hard time really analyzing where the price should be, they don't like that. It's not actuarily determinable for what they should be charging."
Despite their rapid growth, Lindahl believes senior living operators today are better than he's ever seen. "Regulation of the industry is great, and the oversight is great," he said. "It's just the legal environment that's driving claims; not the quality of care."
What can agents and brokers do to help their senior living accounts contend with today's market and legal conditions?
"I think our job as brokers is really to help a client become more defensible," Lindahl said. "It's not necessarily to go in and help them provide better care, although we'll do that in some way, too."
For example, agents can advise nurses in skilled nursing or assisted living facilities on how to better document a patient's file, which may help them to be less of a target to the plaintiff's bar, he said.
Agents can help identify a senior living facility's weaknesses and strengths so if they do face a claim, they are prepared to defend themselves. "If we can help our clients prove that they're giving great care, we're helping them," he added.
Also agents can help facilities manage the current insurance cycle by making sure they are providing all the details when submitting accounts to market, according to Art Seifert, president, Glatfelter Program Managers.
"When you get into a hardening market like today, more information is better," he said. If an account has any large loss, that loss needs to be well-researched and explained. "You need to take the time to research those losses and to be able to tell a story about it in the most positive light possible," Seifert advised.
"Maybe it's that there's been a change in the director of nursing and ever since that director of nursing came on board, the last three years, the losses have been great," he said. Perhaps an old director of nursing was the culprit under past losses but that person was fired. "Whatever it might be, you need to look at all the details carefully and come up with a story that can convince underwriters that the account's worth looking at," Seifert said.
Every detail counts in today's hard senior living market because there's almost no incentive for underwriters to even look at business they're afraid of, Seifert said.
Seifert added that today's industry is challenging especially for a younger generation of agents. "A lot of agents have frankly never sold in a hard market," he said. That means learning how to have very difficult conversations with their insureds. For many years the market has been disingenuous in pricing risk, he said. "And now all of a sudden we're getting honest about where the risk needs to be priced."
All indications for 2020 point to a difficult senior living insurance market, says Matthew Wasta, vice president, APU Senior Care at AmWINS Group. "It's a rapidly evolving market and several carriers have pulled out. Those that remain are taking a hard look at their rates, the limits they put out, and their participation in this market," he said.
Linda Stueber, vice president, middle market underwriting and business development, at Nationwide recommends that facilities also pay close attention to who they admit as residents going forward. That might help to reduce exposure to liability losses, she says.
"Some folks are reluctant to do background checks on residents, but there have been situations where communities admit a resident who is a past sex offender and that's something to think about," she said. "We're not advocating that they should deny residency or evict someone because of that but it's something that they may want to consider."
Another area that in her view could be an issue is medical marijuana. "It's a hot topic these days, especially in states where it's legal," she said. "Facilities have to look at that differently depending on the laws in the state and what the residents want."
Lastly, she recommends paying attending to "acuity creep." That is where a resident's cognitive or physical abilities decline to the point at which facility staff becomes unable to adequately care for them. Acuity creep has the potential to lead to claims activity, she says. "Sometimes a community will stretch to keep folks in assisted living when perhaps they really need full nursing home care."
Most importantly, Wasta says agents should be cautious in such turbulent times when submitting new business. "My best advice to agents would be to put forth the highest quality submission possible with the most detailed information they can obtain," he said. "Carriers now are not giving a pass to folks that don't provide complete information. And you'll get the best terms possible with the best information."
Republished from the Nov. 18, 2019 issue of Insurance Journal Magazine.