Senior living facilities face numerous threats that could have a profound effect on their ability to provide quality care. The severity of these threats may vary by location, but they can significantly influence the property/casualty insurance market for these facilities.
The Insurance Journal recently reported that the entry of new carriers and increased capacity have led “some carriers to completely exit the space.” The magazine also quotes one expert who believes that more carriers may pull back from the market and tighten their willingness to provide coverage.
On the other hand, workers' compensation has remained stable as employers invest in the physical and mental well-being of their workforce. This approach not only helps reduce claims costs but also helps attract and retain employees.
What are the threats causing facilities to face liability exposures and higher costs of coverage?
- Rising operational costs and a challenging insurance market
- Aging physical properties
- Increasing claims severity
- Staffing issues
- Ongoing cyberattacks
- Uncertainties about the future of the care industry
While these are often related, each one presents a unique challenge that needs a solution. Individually, they may seem minor, but together they create a significant mountain of potential issues.
Let’s take a brief look at each issue:
Rising costs and a challenging insurance market
The demand for senior care is going up—and that’s not going to end any time soon. As more Baby Boomers age and require care, operational costs are also rising. This includes labor costs, inflation, property taxes, and capital investments, all of which contribute to the growing expenses of managing and insuring the facilities.
Physical properties are in decline or at least in question.
Because of their similar construction, insurance underwriters may assess senior care facilities in much the same way they do for apartment complexes. These facilities typically feature combustible frame construction with large roof footprints, making them “higher risk” properties due to the liability involved in caring for elderly individuals.
The National Investment Center for Seniors Housing & Care (NIC) reports that many senior living buildings are now 20 to 40 years old, prompting carriers to require detailed information on roofs, plumbing, sprinkler systems, electrical systems, and structural improvements. As a result, building owners must invest in regular updates and maintenance while also focusing on risk mitigation to help lower insurance premiums. Additionally, inflation and the threat of natural disasters further complicate the management of senior facilities, increasing uncertainty.
Claims severity has increased.
Claims may often influence premium costs for both liability and property insurance. This trend is evident across the entire continuum of care, with assisted living facilities seeing the most significant increase.
According to CNA’s recent Aging Services Professional Liability Claims Report: 12th Edition, the severity gap between assisted living facilities and skilled nursing facilities has widened since 2021. The average total incurred is now 14% higher in assisted living facilities. Overall, the average claims total has increased 3.8% since 2021, now averaging $259,443.
Falls and pressure injuries account for the majority of closed claims. The costs associated with claims related to the failure to transfer a resident to the appropriate level of care when necessary have risen significantly.
According to the CNA report, the average cost of claims related to resident abuse increased by 46.7% in skilled nursing facilities and by 17.3% in assisted living facilities.
Staffing issues
Senior care facilities must navigate a persistent staffing crisis while maintaining their budgets and meeting the expectations of residents and their families.
The U.S. Census Bureau projects that the number of Americans aged 85 and older will double by 2040. Meanwhile, the Bureau of Labor Statistics estimates that there won’t be enough workers to meet this growing demand.
The American Health Care Association (AHCA) released its 2024 State of the Sector Report, which found that 98% of long-term care facilities currently have open positions. Additionally, 72% report that their staffing levels are lower than before the pandemic, and 94% indicate that it is extremely difficult to recruit new staff.
Cyberattacks are still a huge problem.
Senior living facilities are often responsible for storing a significant amount of sensitive personal information, including medical records, financial data, and contact details. If this private data is accessed during a breach, it can lead to HIPAA violations and civil rights lawsuits.
These facilities often rely on outdated cybersecurity resources, which makes it easier for hackers to gain access. Cybercriminals also target third-party vendors and facilities to obtain sensitive data. According to Skilled Nursing News, this has resulted in a doubling, and in some cases, a quadrupling of cybersecurity insurance premiums over the past decade.
That said, coverage is readily available, and premiums have remained stable in recent years. Facility owners must invest more in prevention and continually train their employees on effective risk mitigation strategies, such as avoiding links, not downloading attachments from unknown sources, and verifying the authenticity of return email addresses.
Questions about the future of the care industry
Significant questions loom over the senior care industry, suggesting that the current system may not be sustainable:
- How will society care for seniors as Baby Boomers reach their eighties?
- How will this care be funded?
- How can senior care facilities manage costs while providing exceptional care?
- Can facilities shift costs without taking on excessive risk?
- Will Medicaid and Medicare find ways to expedite reimbursements?
- Will Medicaid and Medicare remain as robust as they have been?
All of these issues and unanswered questions compel senior care facility owners to make difficult decisions. To navigate this effectively, it’s beneficial to have a partner who can help you find the right answers and address questions you may not even realize you need to ask.
What Marsh McLennan Agency can do to help
As the nation’s leading insurance broker, we can help you find the right insurance along with a well-tailored menu of employee health and benefits coverage—but we can offer you so much more:
- Liability coverage and risk management to help you understand your risks, protect your workforce, and secure customized coverage
- Property, benchmarking, and analytics featuring our proprietary assessment and valuation resources to help you address rising costs
- Talent acquisition and retention with MMAs Healthcare Safety Services, competitive benefits packages, retirement and wealth planning, and much more
- Optimized employee health and benefits through data-driven solutions like our Workers’ Health 360® and Planning and Analytics for Total Health
- Cyber risk consulting that’s personalized to help assess, mitigate, and insure against cyber risks
In addition, we offer consulting on sexual abuse and molestation liability, safety and loss control, HR, and mental/behavioral health support.
To learn more or to talk with a Marsh McLennan Agency senior living expert, contact us today.
