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Survey Report

Insurance Marketplace Realities 2019 Spring Update — Senior living and long-term care

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April 23, 2019

The heated litigation environment continues to drive increased severity as underwriters focus on quality providers with strong clinical risk and claims management programs.

Rate predictions

  Trend Range
Senior living and long-term care Increase (Purple triangle pointing up) +5 to +30%

Key takeaway

The heated litigation environment continues to drive increased severity as underwriters focus on quality providers with strong clinical risk and claims management programs in their search for rate adequacy and right-sized retentions.

Continued pressure on profitability is hardening the marketplace, bringing greater volatility, underwriting scrutiny and a focus on hot-spot venues.

  • A back-to-basics approach means more detailed submissions, face-to-face meetings with underwriters, thorough supplemental information, clinical and data risk analytics and longer lead times to obtain quotations.
  • Underwriters are delving deeper to evaluate operators’ policies and procedures involving high-profile risks, including falls, elopement and resident abuse.
  • As carriers exit this space or re-underwrite their books, they are hyper-focused on troubled venues where severity and frequency trends are more pronounced.
  • Retentions (deductible or self-insured retentions) are on the rise.
  • More clients are considering captive solutions and creative ways to drive down the cost of risk while maintaining compliance with lender and other stakeholder requirements.
  • Capacity is entering the space and proving competitive on selective accounts, although the new underwriters’ appetites are limited and their approach cautious.
  • We see strong competition for insureds with more stable loss experience.
  • Owners are reducing the volatility of their managers’ insurance expense by securing insurance on behalf of those operating their assets.

Several factors are creating emerging risks in the sector.

  • Class-action lawsuits focused on anti-consumer, staffing, marketing and ADA violations could be coming in more states.
  • Expanded litigation beyond urban areas is affecting results in suburban and exurban venues more dramatically.
  • As the industry struggles with employee retention, the full employment economy in many regions accelerates staff turnover. Turnover disrupts continuity of care, proper compliance, good documentation and detailed record keeping. In turn this increases litigation, inflating defense expenses and the cost of claim resolutions.
  • Natural disasters, including wildfires, catastrophic storms and flooding, are drawing underwriter attention to disaster preparedness.
  • Although occupancy challenges have dampened M&A in the sector, significant activity persists and a focus on due diligence, vetting policies and procedures, and mitigating turnover is critical to making sure combinations succeed. Underwriters will still focus on pre-acquisition loss history on assets that are in play.

Increasing claim frequency and severity trends are putting pressure on carrier loss ratios, driving rate, pushing increased retentions and adding scrutiny to the underwriting process.

  • Recent studies indicate assisted living and memory care communities are averaging higher severity losses than those in skilled nursing facilities. Buyers will need to keep a keen eye on verdicts, settlements, class action matters and the evolution of tort conditions in various venues.
  • Carriers are focusing more on management of falls, memory care and prescription drugs.
  • Carriers have begun to restrict coverage grants, such as most favorable venue endorsements for punitive damages and are adding coverage triggers that allow defense costs to erode primary limits of insurance.
  • Several states are seeing significant rate increases, including California, Illinois (Cook and the collar counties) and Florida.
  • Natural disaster losses are negatively impacting property pricing and coverage grants.
  • Auto and cyber lines of business are also under pressure due to adverse experience.
  • Expect terms and conditions to come under increasing scrutiny from carriers in high focus areas.
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