Senior Housing Operators Must Address Risks as Liability Insurance Costs Grow

Faced with rising liability insurance costs, senior housing providers are working with insurers and insurance brokers to address the issue by identifying and managing risks.

Liability insurance rates are expected to rise by as much as 30% in 2019, according to insurance broker Willis Towers Watson.

The growth in claims, payouts and settlements is so steep, it is forcing some insurers to exit the senior housing market, Willis Towers Watson Managing Director John Atkinson told Senior Housing News. While the increase can be attributed to several factors, one stands out. The average life expectancy in the U.S. is 78.6 years, according to data from the National Center for Health Statistics. Americans are living longer and entering senior living later in life, requiring higher levels of care, particularly in assisted living and memory care.

“Acuity is a real issue,” Atkinson said.

As liability claims continue to grow, smaller operators may face a day of reckoning, Silverado Senior Vice President, Risk and Legal Affairs Frank Russo told SHN. But providers of all sizes should be alert to this issue. As the senior housing market becomes more competitive, profit margins become smaller, acuity levels become higher, and the regulatory, legal and insurance demands become greater.

Re-assessing risk management profiles

Resident falls account for nearly 40% of the spike in senior living-related claims, according to a 2018 report from CNA, a Chicago-based commercial property and casualty insurance company. Other common claims come from elopement, mismanaging medication and, in skilled nursing facilities, pressure wounds.

These common incidents lead to some of the bigger claims insurers see, AmWINS Program Underwriters (APU) Assistant Vice President Amanda Fioretti told SHN. Fioretti and AmWINS Vice President Matthew Wasta head the Farmington, Connecticut-based insurer’s senior long-term care underwriting practice.

As liability claims and payouts have risen, insurers have taken to working with senior housing operators on 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.

“We start by taking a look at the resident population and drill down to acuity level,” Fioretti said.

Insurance brokers are assisting insurers with this, as well.

AmWINS offers a risk management program to its customers, and new customers who pass the the company’s risk management examination are offered insurance at competitive rates and support in monitoring improvement, Wasta said. For operators AmWINS does not insure, the company shares its risk assessment findings, to show the areas needing to be addressed.

“We often tell facilities we won’t insure they aren’t a fit for specific reasons,” Wasta said. “Spaces set up for a generation ago are now handling dementia cases as they would a decade ago. It’s a different population with different needs.”

Operators with a significant focus on treating residents with Alzheimer’s disease and other forms of dementia, such as Irvine, California-based Silverado, work to ensure training procedures are updated and foolproof, Russo said.

“Our residents have a different risk exposure with the behaviors associated with memory care,” he said. “Our staff need to be trained on how to react to those behaviors which could ultimately result in a professional liability claim.”

The risk assessment begins at during the hiring process. A few years ago, Silverado launched staff integrity testing, as there is a direct correlation between that and elder abuse. It conducts thorough background checks to ensure the right people are in place.

Insurance brokers are assisting the insurers in their networks with risk management assessments as well. Willis Towers Watson completed a five-part training program on falls prevention with insurers in its brokerage network.

“When [seniors are] exercising and in activities, the number of falls goes down, and other conditions as well.“

John Atkinson, Willis Towers Watson

Both insurance companies and brokers find it important to implement risk management, Propel Insurance Partner Jevyn Backman told SHN. Backman heads Tacoma, Washington-based Propel’s senior housing insurance brokerage.

“Aside from displacing insurance, we help them customize a plan to address risk management and prevent litigation,” she said.

Changing care levels require appropriate staffing, training

Reassessing staffing needs and qualifications is one of the biggest changes senior housing operators face, something that is more challenging in a tight labor market, Wasta said. Having adequate staffing numbers is important. Even more important is the need to be trained to handle a different resident population. Today’s assisted living staff needs to know how to handle not only seniors but the possibility of treating younger residents with dementia.

“It’s more about quality staffing, as well as staffing levels,” Wasta said.

Developing a staffing plan can help minimize the increase in operating costs, Greystone Communities Senior Vice President, Management Services Jim Knox told SHN. Irving, Texas-based Greystone is a management consulting firm for senior housing providers that offers guidance related to strategic planning, occupancy improvement, redevelopment and expansion, and more. Greystone mainly works with nonprofit, independent living and life plan communities on staffing and risk assessment profiles.

“As such, we have higher staffing ratios and more credentialed staffing, although it’s not a requirement,” Knox said.

Wellness programs help curtail risk

The bulk of liability claims come from facilities dealing with higher acuity levels of care such as assisted living and memory care. One factor in this trend is that seniors are entering assisted living at an older age, and come with multiple conditions needing treatment. They are living unhealthier longer, Wasta said.

“The data we’re seeing shows seniors have higher rates of dementia, diabetes and heart disease,” Wasta said. “They have multiple medical issues and more complex medical case in facilities not designed to handle complex residents.”

Health care providers across the continuum, including in senior living, are shifting from providing treatment to fostering individual’s wellness and preventing more serious issues. This holds potential in reducing liability claims long-term and is having a positive impact, Atkinson said.

“The increased presence of wellness programs in lower acuity levels of senior housing keeps residents more engaged,” he said. “When they’re exercising and in activities, the number of falls goes down, and other conditions as well.“

That said, independent living and active adult communities do have their share of liability insurance claims. Moreover, injuries residents in these facilities suffer now may lead to more frequent treatment as they move through the care continuum, and the risk of a liability claim increases, Fioretti said.

“Injuries among active adults are more severe when they do happen,” she said. “They’re doing things we didn’t see them do in the past. Because they’re active and have no acuity issues, when they are injured medical care is more complex.”

A growth market

The insurance carriers still underwriting senior housing facilities are confident changes in treatment will result in better underwriting.

“Carriers are becoming smarter about underwriting the risk,” Atkinson said. “They’re focused on quality operations, making sure they have rate adequacy: charging enough to be able to provide insurance at a rate that will allow the carrier to pay out losses that will happen, while still making a profit.”

This spike in liability claims may be cyclical and there is no crisis, even as carriers exit the marketplace, Atkinson suggested. From 2000 to 2002, liability claims grew to where providers in certain states could not buy liability insurance.

“The industry responded with a stronger focus on quality, risk management and learning to become better operators,” Atkinson said. “At the same time, there were some changes in state laws and the plaintiffs were not as successful in their pursuit, and liability rates started to come down. There was more competition in the space, among insurance providers.”

What has happened over the past 24 months has impacted pricing, but the carriers that remain are focusing on underwriting quality risks and improving the overall risk profiles.

Moving forward, liability premiums and rates will be tied with litigation trends, Backman said. This makes it more imperative for insurers and operators to work together.

“Operators look to us to be the experts here,” she said.