Senior Living Faces Aggressive Litigation, Rising Insurance Costs in 2020

Rising insurance costs and expensive claims continued to plague the senior care industry in 2019, and relief does not appear to be in sight.

In 2020, senior living providers will continue to face rising insurance costs due to an elevated risk environment driven in large part by attorneys targeting vulnerable operators in markets favorable to litigation, CNA Insurance Vice President, Industry Leader for Aging Services Blaine Thomas told Senior Housing News.

Other factors contributing to the frothy insurance landscape are a tight labor market where workers have their choices of job openings; the exploding interest in for-profit senior housing among real estate investors; a smaller number of insurance carriers willing to underwrite senior housing and other aging services; and the continuing trend of Americans living longer and entering senior housing later in life with higher acuity levels of care.

This is a far cry from the optimism carriers viewed senior living only a couple years ago.

“With the trend of physicians becoming employees of or affiliated with health systems, reducing individual physician insurance opportunities, aging services was viewed as a growth industry for insurance companies offering medical professional liability solutions,” Thomas said.

Advantageous attorneys

The growth industry has turned out to be in filing liability claims, instead. Personal injury attorneys are aggressive in identifying potential plaintiffs and pursuing actions in states with loose tort environments, Willis Towers Watson Managing Director John Atkinson told SHN.

These attorneys are sharing best practices at conferences and in one-on-one settings on what senior living organizations to go after, how to gather discovery information, providing training and mentoring to other attorneys entering the field, and better understanding of liability theory.

This is contributing to the constriction of insurance carriers in the marketplace, to the point where only the ones with the most experience and scale are willing to underwrite senior housing. And even those carriers are hedging their bets and asking operators to assume more risk and higher deductibles, depending on the market.

“We recognize the challenges related to regulatory environments. The aging services market is a complex industry. CNA takes a comprehensive look at the opportunities for each market, analyzing underwriting profiles and rates in a region,” Thomas told SHN.

The growing appetite for litigation parallels the rise of senior housing as an institutional-grade real estate investment type, Heffernan Insurance Brokers Senior Vice President Brant Watson told SHN. A lot of capital is flowing into the space from newer entrants that may not fully understand the operational intensiveness of senior housing. Investors looking to deploy capital quickly are more prone to partner with operators that may not have the protocols in place to prevent litigable incidents and are more susceptible to claims and lawsuits.

“Partnering with the right [operator] is important,” Watson said.

The rise in claims and litigation activity is also spurring its own spinoff industries.A couple European companies have entered the space which specialize in litigation funding and are willing to seed lawsuits in order to see part of any judgments or settlements, Thomas noted.

As a result, carriers reported increases in general/professional liability loss frequency and severity between 8% and 12% in 2019, while buyers are seeing less favorable terms and conditions, in addition to rate hikes, according to Willis Towers Watson’s 2020 Marketplace Realities report.

The average cost per unit of professional liability insurance in assisted living communities was $421, while the average liability insurance rate in assisted living and memory care facilities was $717 per unit, according to the 2019 State of Seniors Housing report from the National Investment Center for Seniors Housing & Care (NIC).

Additionally, there is an increase in class-action lawsuits focused on anti-consumer, staffing, marketing and ADA violations. These suits are prevalent in California but could be coming to other states where operators are vulnerable, according to the report.

The carriers still active in the space are focusing on what Watson calls the “four L’s” when underwriting senior housing: longevity; past losses; level of care; and location.

Emphasizing ‘expectation management’

As the frequency and severity of claims grows, carriers are working with operators to minimize their risk profiles. They are assessing their risk management profiles to reduce the probability of a resident’s family filing a claim. Insurers look at the controls that are in place to minimize falls, ensure best practices for common incidents, work with operators to implement these practices and conduct frequent audits to see what is working and what needs to be tweaked.

Willis Towers Watson spends a lot of time with its clients discussing change management, managing risk, and engaging employees to identify situations that could result in claims or suits, Atkinson told SHN.

The firm commissioned a series of 26 training videos, produced with larger providers, for clients as quick training on resident handling. Clients embracing these strategies are seeing results in lower litigation.

Moreover, carriers are working with operators to emphasize “expectation management” between operators, residents and their families. Historically low unemployment levels and competition for talent from within and outside the industry have made it harder for operators to recruit and retain workers. This has resulted in a lack of experienced workers and the higher probability of a claim, Watson told SHN.

Expectation management is especially important as there is a high propensity of loss in a resident’s first two weeks in a facility, as they become acclimated to the community and caregivers.

“[Senior living] is a service industry. That means there needs to be as much communication as possible between operators, residents and their families,” he said.