Success in senior housing requires operators to understand the individual business risk trends that are composing the bigger picture — today, in 2024, and beyond. These trends include economic inflation, catastrophic risk, corporate governance, litigation and cyber risk, and can lead to higher costs of goods and services, supply chain disruptions, greater scrutiny of business practices, exposure to costly lawsuits and attacks on digital systems.
“Once you examine these trends and understand them, you can proactively put together plans and partner with experts like Marsh McLennan Agency to get ahead of these challenges and financially make the most of the situation,” says Sarah Mariuz, Vice President of Business Insurance for Marsh McLennan Agency.
Through robust risk management and effective risk transfer, organizations can protect their people and property while preserving opportunities for growth both near- and long-term. Top trends to monitor for in 2024 include:
- Inflation (economic and social)
- Litigation trends
- Catastrophic risk
Beating back inflation — both economic and social
Though down from its peak levels in 2022, inflation remains persistently high, fueling concerns of a recession. In January 2023, the Consumer Price Index (CPI) for urban consumers, including food and energy, was about 6.35%. Two years earlier, the CPI was only 1.39%.
Another inflation challenge in the industry is rising interest rates, which raises the cost of capital and can impact businesses’ debt burdens and access to credit.
“Inflation and the macroeconomic conditions happening in our world are ultimately also creating a stricter lending environment for our owners and operators,” Mariuz says. “The rising cap and interest rates are resulting in lower valuation, contributing to lower transaction activity. We see a lot of challenges with our clients in working with their lenders during this time as well.”
Yet all of that speaks only to economic inflation. Discussed less is social inflation, which in senior living refers to the phenomenon of higher jury verdicts and court awards, typically because of changing attitudes that favor plaintiffs. Unlike economic inflation, social inflation cannot be adjusted by raising interest rates, thus creating many unknowns for all operators, from those with five or fewer communities to the heavy hitters.
“Operators should carefully examine their liability exposures and seek mitigation to those who have the expertise that they need, through robust risk management and carefully customized insurance programs,” Mariuz says. “That said, not all insurance brokers are equal. To avoid exposing your business to greater risks, it is important to work with a broker who has a specialization in senior care.”
Steps to address: To mitigate social inflation, Mariuz recommends that operators take four steps:
- Proactive risk management
- Robust documentation
- Building best-in-class policies and procedures
- Increasing training and in-services for their staff around customer service
“Happy residents and families do not sue operators in buildings and locations that they love and enjoy,” she says. “The customer service component is really key, and it’s something that our agency is really skilled at working on to help operators avoid these potential costly situations and lawsuits.”
Treating residents and their families well isn’t the only way to avoid litigation.
Liability risk has long been a concern of businesses, and current trends in litigation have made mitigating that risk more urgent.
For example, consumer lawsuits are increasingly aimed at businesses’ use of personal data without consent. This trend coincides with data privacy regulations in several states, including the California Consumer Privacy Act, which took effect in 2023. Disputes between commercial landlords and their tenants is driving litigation too, becoming more frequent as businesses adapt to remote work and occupancy remains reduced.
Businesses are also seeing regulatory enforcement actions by agencies, such as the Federal Trade Commission and Department of Justice, on matters from employment practices to antitrust to data security.
“The most important thing to point out is defending litigation,” Mariuz says. “It’s costly and it’s distracting, and compounding this risk is the difficulty in predicting lawsuit outcomes.”
Steps to address: Work with insurance firms with senior living experience that can help you identify the legal vulnerabilities your business faces.
“That expertise is paramount to having the claims and the resolution to those claims being as manageable as possible,” she says. “Experienced counsel and a robust insurance program give operators the potential to save money while minimizing, or outright avoiding, costly settlements.”
Sidestepping catastrophic risk and property annihilation
Risk is becoming more complex and volatile for operators. It’s becoming, in a word, catastrophic. A single event, whether a natural catastrophe or one caused by humans, can have a significant impact on any operation.
An occurrence does not necessarily have to be local to generate severe losses. The interconnectedness of supply chains means that incidents on the other side of the world can disrupt critical supplies and result in catastrophic losses for businesses, no matter how well run, how big, or how fortunate they are.
Threats to an operator’s people — staff, residents or both — is one part of the problem, and threats to infrastructure and facilities is another. It took the scope of COVID-19 disruptions to signal to the world how catastrophic events can upend global economies.
“In 2022, the U.S. saw 18 separate billion-dollar weather and climate disasters,” Mariuz says. “This data helps us understand why the market conditions are the way that they are, why their property prices continue to increase or why maybe they don’t have the same program set up the way that they did last year.”
Steps to address: Examine your property exposures and risk preparedness.
“If there’s one term that would summarize our senior care clients amidst the pandemic, it would be ‘resilient,’” she says. “This theme of resilience needs to continue in the form of proactive planning and preparedness. One of the ways that we help our clients is by utilizing our data and analytics and we assist our clients with the management of their physical risk.”
This article is sponsored by Marsh McLennan Agency and its new Business Insurance Trends report. For more on how you can mitigate the risks facing your business today, download the free report.