The market for liability insurance in senior living continues to face rising costs as well as spikes in expensive claims, settlements and payouts. As insurers and insurance brokers work to identify and manage risks, they are stressing to senior living operators to provide as much data as possible and to be transparent with liability incidents, in order to provide more accurate risk profiles and underwriting.
Data and transparency are essential to combat these growing challenges and allow for more accurate insurance underwriting, experts said during a webinar hosted by insurance broker Willis Towers Watson this week.
The webinar’s moderator, Willis Towers Watson Managing Director John Atkinson, and panelists, Sapphire Blue President and CEO Nancy McMahon and CNA Healthcare Senior Vice President Bruce Dmytrow, painted a stark picture of the insurance industry’s woes underwriting senior living over the past 24 months — struggles that have become more pronounced in the last 60-90 days as trends have emerged that are affecting renewals in an adverse manner.
Willis Towers Watson’s “2019 Insurance Marketplace Realities” report, released last November, projected insurance rates to increase 5% to 30% for senior living and long-term care providers, year over year.
“The senior living liability marketplace is really in a tough position right now,” Atkinson said.
The first half of 2019 has seen a slew of judgments and claims payments that will adversely impact underwriting moving forward.
Notably, a Sacramento, California jury last month awarded $42.5 million in punitive and compensatory damages to the family of a 77-year-old woman who died in an assisted living facility in Orangevale, California operated by Eskaton Senior Care and Services. Attorneys for the woman’s family argued she died from being regularly given the prescription drug Atvian without her consent.
CNA Healthcare’s insurance portfolio saw an 11% prospective loss trend in 2018, compounding previous years’ losses, Dmytrow said.
The insurer is seeing a significant impact in claims payouts between $250,000 and $1 million. In 2019 alone, CNA Healthcare received liability claims of $3 million and $4 million from independent living communities.
“If we are not recovering from those loss trends, you can see how that would build up pretty quickly,” he said.
London-based Sapphire Blue has firsthand experience dealing with a spike in severity of claims. Sapphire Blue has underwritten the senior living industry for over 20 years. During that time, it has received five excess claims — liability claims above and beyond a provider’s main liability policy. Four of those were in the past three months, McMahon said.
“We’ve had recent claims in assisted living of $3.5 million and $6 million,” she said. “It’s shocking.”
Insurers have long contended with struggles insuring senior living in a growing number of states. Illinois, Kentucky, California, Florida, New Jersey, Tennessee and West Virginia are historically tough states for insurers. Nevada has joined those ranks, McMahon said.
“There are staffing issues there,” she said. “If a new venue or clinic opens, there’s a run on nurses.”
Insurers used to see claims confined to within major metropolitan markets, Dmytrow said. That is changing.
“Some of those large claims are going to a 20-30 mile radius outside the cities,” he said.
Actuarial data from insurers also shows the longer a claim remains open, the higher the payout. Payouts for claims that have been open longer than 36 months are significantly higher than those settled sooner, Dmytrow said.
Gather as much data as possible
The headwinds insurance carriers in the process of underwriting senior living has shrunk the marketplace significantly. Dmytrow counted 10 carriers leaving the industry in recent years.
Insurers still committed to underwriting senior living are doing so with discipline. CNA Healthcare and Sapphire Blue have each taken action to continue to offer terms and conditions that are profitable, while maintaining marketplace sustainability.
One thing they have honed in on is being mindful of a provider’s merger and acquisition activity, Atkinson said. There is a lot of fluidity in the equity transfers, brisk activity in lease transfers and cancellations, operator reassignments and recapitalizations which bring new assets into a provider’s existing profile, and divestitures from another provider’s program.
Insurers want to understand what assets they are underwriting. They are looking at prior loss histories and there is concern that tail coverage — provisions in insurance policies which permit an insured to report claims that are made against the insured after a policy has expired or been canceled — is not in place.
Before an asset moves, insurers want to ensure that any prior incidents have been reported to the prior carrier. It is easy to obtain when bringing a new community into a portfolio, McMahon said. But not having access to that data the following year puts insurers at a disadvantage.
“It puts us at a disadvantage because we can’t really assess the [asset’s] experience and get the price right,” she said.
Insurers are stressing to their clients to use due diligence and err on the side of transparency when integrating new properties into their portfolios and how those will impact future losses. Underwriters are considering the prior operators’ history of reporting incidents and accounting for those incidents before an asset transfer.
Atkinson suggests providers negotiate having the ability to access the prior years loss data in future periods. This will help insurers better understand the true risk profile of an asset.
The insurance broker and underwriting partner should be collaborating as soon as possible on an asset’s risk profile, as it allows the provider seeking insurance to make the right choices based on market and environmental factors, as well as allow an underwriter to bring in its risk control team to do due diligence.
A 90-day lead time is ideal, McMahon said.
“A bad rash of incidents does not make one uninsurable,” she said.