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Insurance premiums are rising and coverage is tightening, leaving senior living providers facing significant increases in loss costs, according to a new claims benchmarking study from Willis Towers Watson.
The risk management, insurance brokerage and advisory company’s Senior Living Center of Excellence surveyed 38 independent living, assisted living, memory care and skilled nursing organizations and looked at more than 14,000 general and professional liability claims from 2009 to 2019 for its inaugural “Senior Living 2021 Claims Benchmarking Study: A General and Professional Liability Actuarial Analysis.” What they found is a long-term care industry still struggling with pandemic-related costs facing significant claims losses, amplified by rising insurance rates.
The authors noted that the insurance industry is going through a “hard” market cycle, driven by a sizable increase in awards that are inflating loss costs. Insurers are responding with higher premiums and reduced coverage, and some insurers are leaving the industry as others place moratoriums on writing new business.
“Higher costs and risks would be problematic in any industry, at any time, but senior living operators are also having to adapt to the unforeseeable impact of the COVID-19 pandemic,” they wrote.
The report found that average claims limited to $1 million have been growing at a double-digit rate annually from 2016. This growth has led total loss costs to jump by 11.56% annually after 2016 — up from 4% in the preceding years.
Randy Stimmell, a Willis Towers Watson senior vice president, told McKnight’s Senior Living that the study notes that a high variance exists between total costs in different states, “which create some real practical difficulties for operators in the state reporting high losses, which in turn results in higher expenses and lower valuations.”
Kentucky had the highest average loss cost, at $1,650 per exposure — almost three times the country-wide average — followed by Florida ($1,050) and Illinois ($975), which had claim frequency rates at 50% and 80% higher than the national average, respectively.
States with the lowest annual loss costs were Texas ($180), which also had the lowest frequency rate; followed by Ohio ($285) and Michigan and Indiana (both $380).
California had the highest average cost per claim at $250,000 — almost 75% higher than the national average. The Golden State also has a challenging legal environment, with lost cost per exposure increasing at 12% on average after 2012. In some cases, insurers refuse to underwrite operators there.
Indiana had the lowest average award, at $90,000, followed by Texas ($95,000) and Maryland ($105,000).
The high variance between total loss costs in different states is creating difficulties for operators, according to the report. In some cases, insurers are voiding or restricting coverage, or aggressively increasing premiums, the authors said. The variance also is affecting valuations for operators looking to sell communities in those states.
“Ultimately, should double-digit losses continue unabated, it could raise questions about the financial viability of senior living communities in some areas of the country,” the authors wrote. “The inability to have any significant presence of senior living communities within a state would have huge economic and political ramifications, and operators are beginning to openly ask if there is any potential solution.”
Risk reduction strategies
Possible strategies to improve operational performance and reduce claims risk, the authors said, include:
- comprehensive admissions screening processes,
- well-developed clinical systems,
- electronic medical records,
- early incident investigation and resolution processes,
- employee engagement strategies to lower staff turnover, and
- on-site rehabilitation therapists.
“The implementation of such proactive risk management practices can have immediate pricing benefits from insurers who understand the lower litigation risk from companies implementing such strategies,” they wrote.