Senior Living Hardening Insurance Market

5 Causes of the Senior Living Insurance Market Hardening

For owners and operators of long-term care facilities, the insurance market has long been a dynamic and sometimes challenging place. For senior living facility owners, obtaining comprehensive insurance at competitive prices remains a challenge – and that challenge is about to become even more burdensome with changes in the marketplace itself. The senior living insurance market is hardening due to several factors.

The Reasons for the Senior Living Market Hardening

In this guide, we will explore the top 5 causes of market hardening with an eye toward helping insurance clients overcome any challenges they may face.

Rising Claim Expenses: Pushing Insurers to Become More Selective

The primary force driving the senior living facility insurance market’s recent changes is the fact that claims have risen dramatically over the past decade. For the purposes of this discussion, senior living facilities may refer to several different types of healthcare facilities, including:

  • Nursing homes
  • Independent living facilities
  • Skilled-nursing centers
  • Assisted living facilities (ALFs)

In a report on claims published in 2016 by CNA Aging Services, the insurer indicated that while claims type and frequency across long-term care models remained roughly the same in the years leading up to the report, the average individual cost of claims rose sharply. Average claims payment for facilities in 2015 included:

  • $123,825 for independent living facilities
  • $212,766 for skilled-nursing facilities
  • $221,496 for ALFs

Skyrocketing Claims

Insurance industry analysts suggest that the skyrocketing claim averages are due to several factors, including the time it takes to resolve claims, the severity of claims themselves, and an increasingly friendly legal environment where plaintiffs are more readily able to win claim disputes. In general, with insurers facing higher claims expenses and longer periods of time to resolve claims, those insurers have become far more selective about the facilities they write policies for. They have also raised premium rates significantly, effectively causing many long-term care facilities to have difficulties obtaining affordable insurance products.

The Economic Factors in Long-Term Care Facilities

In addition to the rising claims costs influencing the availability and pricing of senior living facility insurance, there are four other factors that these facilities are dealing with. Combined, these factors have given facility business owners greater challenges to overcome. Economic hardships, coupled with the financial losses associated with these hardships, have driven up claims frequency and severity.

The four economic factors impacting long-term care facilities are:

  • Reduced demand by seniors – seniors in the United States are living longer, and more are choosing the option to age at home rather than seek care in a healthcare facility. As a result, occupancy rates of long-term care facilities are plummeting.
  • Excessive staff turnover rates – senior living facility owners have long faced problems with staff turnover. Relatively low wages and long work hours combine to cause credentialed employees (RNs and CNAs) to seek employment elsewhere in the healthcare field. Expenses associated with recruiting and training a steady stream of new employees has also negatively impacted finances at many care facilities.
  • Mergers and acquisitions activity – in recent years, conglomerates have been buying up privately-owned facilities and small regional facility networks, especially those that are underperforming in their respective markets. During the transition time to new ownership, expenses mount, and financial turnaround may take in excess of 24 months.
  • Insurance requirements for lenders – facilities seeking capital from lenders have discovered those lenders have increased requirements for insurance. These include forcing senior living facilities to purchase high limits, ultimately driving insurance costs out of reach of many smaller operations.

Helping Senior Living Facility Clients Overcome Insurance Challenges

Insurance agents and brokers often have the keys to unlocking better solutions for their healthcare clients. Long-term care facilities face significant hurdles now and into the future; with the hardening of the market, there are two leading methods for helping these facilities remain strong:

  • Managing client expectations – long-term care facilities need to understand up front that premiums are increasing, and will continue to do so to correct the long-term underpricing of this insurance market. If facility owners understand that going forward, this helps to manage expectations.
  • Restructuring insurance plans – facility owners and insurance agents should work together to find cost-effective solutions, which may include careful review of existing policy coverages and limits. Retaining more risk or agreeing to higher deductibles may ultimately drive down premium costs, but this is not always the case.

Finally, senior living facility operators must manage their own risks. By doing so, they can reduce both the frequency and severity of claims. Over time, a reduction in claims expenses will help to push insurance costs in line with the needs of these crucial facility operations.

About Caitlin Morgan Insurance Services

Caitlin Morgan specializes in insuring assisted living facilities and nursing homes and can assist you in providing insurance and risk management services for this niche market. Give us a call to learn more about our programs at 877.226.1027.