Senior Housing Insurance Rates Continue to Spike, But Signs of Slowdown Emerge

A hardening of the insurance market over the past two years continues to have an adverse effect on senior housing professional and general liability underwriting.

Premiums, program structures and terms and conditions continue to be impacted by a lack of insurers in the space, according to the Spring 2021 Insurance Marketplace Realities update from insurance brokerage and risk management firm Willis Towers Watson.

For primary general and professional liability insurance, senior housing and long-term care providers could be looking at rate increases of 10% to 30% — or more, if they have adverse loss experience and poor venues. Rates for excess policies could be increasing 30% or more.

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To mitigate the total cost of risk, providers are assuming larger deductibles or self-insured retentions, and there is an increase in providers turning to captive programs — insurance companies that are wholly owned and controlled by its clients — for primary layers on these risks.

There are signs that the insurance marketplace is settling. More carriers are entering or re-entering the space, and the pace of insurance rate hikes is decelerating, Willis Towers Watson Executive Vice President and Managing Director John Atkinson told Senior Housing News.

Additionally, Covid-19 has yet to add pressure to the insurance marketplace, as insurers and providers continue to determine what the tort immunity environment is in some states, and if the Public Readiness and Emergency Preparedness (PREP) Act grants providers liability protection. But they are beginning to ask for data from providers related to their Covid-19 response, in case pandemic-related liability lawsuits gain momentum.

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Higher value claims increase

One of the primary drivers in rising insurance premiums is a frequency of higher value claims awarded over the past four to five years, driven by a rise in class action lawsuits and high rewards from juries in states with tort environments favorable to plaintiffs.

Notably, the typical deployed excess line now ranges between $5 million and $10 million, and excess judgments are expected to increase by at least 30% in 2021, a result of existing market volatility, Atkinson told SHN.

Carriers reported increases in general/professional liability loss frequency and severity between 10% and 30% in 2020, compared to 8% and 12% in 2019.

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This reflects accounts that have experienced significant loss activity, where losses are significantly higher than their annual premiums over the past couple years. Providers in areas of the country with substantial exposure to natural disasters such as hurricanes, earthquakes, and wildfires are being hit the hardest.

The spike in average payouts led many insurers to pull out of the marketplace over the past couple of years, and the ones that remained demanded higher premiums from providers in order to insure them.

There are signs of stabilization in the insurance marketplace. Carriers are either returning to the space or entering the industry for the first time. And the rate at which premiums increased in 2020 is slower than the previous year.

The capacity of insurance carriers to underwrite senior housing, while adequate, remains below the volume of previous years.

Minimal Covid-19 impact

The insurance marketplace avoided additional stresses from Covid-19, in part because of uncertainty over how the PREP Act will affect plaintiffs’ ability to file lawsuits.

A federal court in California ruled in February that the PREP Act grants liability to senior living providers taking measures to protect residents from Covid-19. There are other legal challenges working through the court system including the California ruling, and if higher courts show strong amicus support on appeal, some of these cases could be ruled on by the Supreme Court.

In the meantime, industry groups are reminding communities that the scope of the PREP Act is still limited to claims involving covered countermeasures, even as they believe that the law is being interpreted correctly in their view.

Willis Towers Watson has not seen a significant uptick in insurance claims related to Covid-19, mostly because of the uncertainty within the tort environment. Carriers responded by continuing to provide capacity. They are also requesting information related to providers’ Covid-19 response, current cases, infection control procedures, vaccination rates among residents and staff, and what their testing regimes entail, Atkinson said.

Carriers are also adding layers of exclusionary language in policies related to pandemics or communicable disease. This is forcing brokers such as Willis Towers Watson to negotiate or mitigate the impact of those exclusions.

With vaccination efforts proving very successful in senior housing and long-term care settings, however, carriers are growing less focused on Covid-19. That can change, as the market remains fluid. Willis Towers Watson’s report is a snapshot of what has happened in previous months. Still, Atkinson remains hopeful that the positive trends will continue.

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