Even before Covid-19 struck the United States, senior living providers faced challenges related to a hardening insurance market. The pandemic has only added further pressures, and senior living operators are facing rate increases, capacity shortages and coverage retrenchments in 2021.
That’s according to the recent Willis Towers Watson Marketplace Realities report for senior living and long-term care.
“The broader hardening of the marketplace, which we’re experiencing right now, is a combination of a number of factors, and it’s a pretty significant hardening,” John Atkinson, executive vice president and managing director at Willis Towers Watson, said during a recent appearance on the Senior Housing News podcast, Transform.
Atkinson explained the forces behind the hard market and how long it might last, shared insights into how senior living providers can navigate current challenges related to insurance and risk management, and addressed what the future might hold — including the outlook on limited litigation protection as the Biden administration takes office.
What’s causing the current hard market?
The hardening of the insurance market over the last 18 to 24 months has affected multiple sectors and multiple lines of business. So, workers comp, general professional liability, excess, general liability for non-health care organizations; the marketplace has been hardening significantly over the last few years. The senior care market, we started to see a gathering storm maybe two-and-a-half, almost three years ago. As we started to see claim severity and frequency increase, there were some pretty significant issues in the senior care space with respect to litigation in certain venues.
It took the insurance marketplace a couple of years to really absorb what was happening. But, the underwriters started to realize that prior years were performing pretty badly and there was significant loss development. It started to impact how carriers’ appetites were affected.
The broader hardening of the marketplace, which we’re experiencing right now, is a combination of a number of factors. And it’s a pretty significant hardening. When we think about the historical cyclical swings of the property/casualty marketplace, it feels a lot like the hard market of the mid-1980s, which was driven by significant changes in risk exposures in the country. And then, there was just a withdrawal of capacity by carriers not willing to write those kinds of risks.
So, we’re seeing that sort of impact on liability, excess, and auto line of business. We’ve really seen persistent events, namely natural catastrophes from 2017, 2018; we’ve had years of declining prices and historically low interest rates. And so, this particular market reacted fairly abruptly. It was a significant hardening across the board.
What can you tell me about capacity in the marketplace and insurance strategies, and how they’re deploying capacity?
Capacity is a challenge in certain sectors, particularly the long-term care sector and senior housing.
From a liability capacity perspective, there were a number of carriers, maybe a dozen, that were writing general and professional liability and excess for senior living — really, the assisted living and memory care space, and skilled nursing. And as these trends started to appear, carriers’ loss ratios were going up, and they were realizing they’re really underwater from a profitability standpoint. So, some carriers withdrew from writing any insurance in this industry sector. Those that remain have determined that they’re going to limit, sometimes, what venues they’re going to write in.
So, for example, the state of California, state of Florida, are two very difficult litigation environments, where we’re seeing claim trends deteriorate at a much more rapid pace, and the severity of the claims is increasing. So, the verdicts and settlements are going up. We see carriers really limiting their capacity that way.
The third way is by limiting the amount of insurance coverage they’ll put up. So, for example, we had a number of clients that buy $25 million of excess coverage, and in years past, they could buy that with one, maybe two carriers. So, maybe a lead $15 million and a $10 [million] on top; some carriers would write the whole $25 [million]. Now, that’s been cut back significantly, and most carriers are only willing to put up a maximum of $5 million, some less than that, depending on the venue.
Do you foresee any further coverage carve-backs?
Now we’re in an environment where the carriers are still reacting to the pandemic. In early Q2, April, we started to see carriers put in pandemic exclusions or Covid-19 exclusions. Carriers are starting to, if they haven’t already, put in class action exclusions to eliminate any potential coverage or defense coverage for claims arising out of class actions brought related to non-bodily injury related claims. So, understaffing claims, things like that — marketing, discrimination. We’re starting to see carriers potentially limit exposure to high-severity claims.
So, some providers are putting a sub-limit, if you will, on claims arising out of sexual abuse or molestation. That type of scenario can be really impactful to organizations who do all the right things. Who do all the background checks and monitor their employees. But, you know, sadly, some employees are inclined to conduct such acts, and those can be excluded in some of the programs that we’re seeing now.
Not to make this into a commercial, but what can an organization like Willis Towers Watson do to help providers navigate the current market?
In order to get the best results, you need to be able to differentiate a client to the insurance marketplace.
So, we do a significant deep dive on data. We look at their prior loss history, we go into the details of claims, we look at where they’re occurring, how they occur, and we work with our own internal clinical risk management experts, who are former nurses and former operators of senior living communities, who know the ins-and-outs of the operations. We have them take a look at the data and look at the publicly available information and really build the story around the management team, around the controls they have in place, around their commitment to getting their employees continuing education and credentials.
And so as we work to build that narrative for an underwriter, we’re also introducing the clients — whether they’re existing clients of a carrier or prospective clients, we work really hard to make sure that there’s ongoing relationships that are being built. Face-to-face meetings in the old days, Zoom meetings today, where we’re making sure that the clients are meeting the underwriters … and the underwriters have an opportunity to kind of kick the tires and meet the management team.
… Once an underwriter writes a piece of business, how do we make sure that the account performs well, that they’re focused on minimizing claims, reducing incidents and managing claims effectively so everyone’s interests are aligned.
Can you talk about the moratoriums on new business that are occurring during the pandemic?
It’s real. It was even more acute early in the pandemic, when I think you couldn’t pick up a Wall Street Journal or a New York Times or a Chicago Tribune without reading about another pandemic disaster in a nursing home. So, we expected that the senior leaders and boards of directors of large insurance companies might start asking questions. How are we doing, how much exposure do we have to Covid and in what sectors?
A lot of the underwriters that lead the long-term care groups within their insurance carriers were really scrambling to make sure they understood what the exposure was. So, we saw some companies put a pause, some put a moratorium, some actually withdrew from the space. And that did impact the marketplace. No doubt about it.
We’re starting to see new capital come into the space, whether it’s private equity or recapitalization of existing facilities to provide coverage, so they can take advantage of what is now a pretty significant rate-increasing environment. So, we see it changing a bit, but so far, the moratoriums and the focus on underwriting has continued with some of the carriers.
Are you seeing clients mandate Covid-19 vaccination for employees? Does that create potential insurance-related issues?
We are seeing clients do it. There are potential employment practices liability insurance issues … the real issue here is making sure that the associates and the residents are educated about the vaccine, that there are places people can go to, to get questions [answered].
So, we’re working with a number of our clients who are interested in contracting with third-party organizations to be inbound call centers with medical folks on the other end that can help answer questions of their associates and of residents. But we’re actually seeing a number of clients experience pretty high uptake without mandatory vaccinations. But, I wouldn’t be surprised to see more organizations migrating toward mandatory vaccinations.
When do you think the hard insurance marketplace might start to let up?
There are some positive signs. Certainly, the property marketplace has been adjusting to a significantly increasing frequency of storms and climate-related events that are impacting their profitability. They’ve been working to get rates adequate and meeting deductible structures and coverage limitations and so forth, to a point where they feel they can write the business profitably. So, we’re seeing some signs that the pace of increases is diminishing a bit across certain lines of business.
I think it’s going to get better. Our thinking on this as an organization is that some time in the second or third quarter of 2021, you will start to see some evidence of that, or some further evidence of that … I think it’s going to happen fast when it gets started, but it’s going to be inconsistent in terms of lines of business and the nature of the industry that’s being underwritten.
This is a two-year-old hard market. It takes a while for rates to get adequate. But what ends up happening as soon as rates get adequate or even too high, we start to see other capital and other providers coming into the space because they feel they can make money in that rate environment. And then as night follows day, it becomes kind of a race to the bottom in terms of competing to retain that business. So, as new capital and new players come in to compete, it puts pressure on the existing marketplace providers. That’s where we start to see the dam break and rates begin to either come down or to stabilize.
With a Democratic-controlled Congress and White House, what are your thoughts on the impact of that on liability protections?
I’m on the board of Argentum; we’ve been partnering with ASHA [the American Seniors Housing Association] and a couple of other trade organizations, and then a couple of folks on my team that understand the litigation environment have been working literally since this thing started on a state-by-state strategy to get executive orders or state legislation to limit liability exposure on an emergency basis for claims arising out of Covid-19, except in cases where there’s gross negligence or willful misconduct.
We had a fair amount of success. I think there’s 12 or 13 states where we’ve gotten that sort of limited protection, and it’s blue states and it’s red states … At the same time, we’ve been woring on a federal solution that actually makes it much clearer and goes beyond what’s called the PREP Act, which I’ll talk about in a minute.
Up until the election, I think there was a lot of hope that the Congress would bring forth a stimulus bill, and Leader McConnell on the Republican side has always said that his line in the sand on any additional stimulus was going to be liability protections for businesses, so we can reopen the economy … apparently, it wasn’t a very bright line in the sand, because it ended up not being in the final bill. We were very disappointed by that.
That leads me to the PREP Act, which is a federal act that was established in the wake of 9/11. It actually provides immunity to covered persons who are deploying covered countermeasures during a medical emergency. There has to be an emergency called by the Secretary of HHS. That happened early on. So, the PREP Act was invoked by Secretary Azar early on. There are significant and important protections provided by the PREP Act that will limit liability in some cases.
We were successful in working with Argentum and ASHA in soliciting HHS for a letter, which they issued, stating that assisted living organizations are considered covered organizations that are eligible to be protected under the PREP Act. So, that’s a very positive thing.
There are not a ton of cases that have been filed yet. We know there will be a lot. We’re hopeful that state and federal judges are able to remand this into the federal system, which is where the PREP Act adjudicates these cases, and that will provide some protection.
It’s going to be very challenging because there’s Covid-19 exclusions on almost every policy that’s issued today or has been since April to a senior living provider. They have a Covid exclusion, most likely, on their general professional liability policy … these folks are running bare, in some cases, and don’t have coverage if there’s another pandemic that happens.
We’ve got to keep the pressure on for the liability piece, because it could put a lot of these folks out of business … I think it would be valuable for anyone interested in helping the industry to tackle that issue.
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