Skilled Nursing Facilities/Adult Assisted living Centers

January 23, 2016

Regarding Skilled Nursing Facilities/Adult Assisted living Centers

Because the premiums are still varying wildly, it is important to thoroughly present this exposure to the markets specializing in this type of professional and general liability insurance.

Evidence suggests that our nation’s demographics demand these centers evolve, grow and provide the same services available at a hospital.

Rates are increasing in Assisted Living Facilities:

According to American Health Care Association, Professional Liability costs are on the rise for long term care facilities, finds AHCA and Aon. In the medical malpractice insurance market, physician premiums have remained stable in spite of an average in claims of 5 % per year.
“Across the country, long term care and post-acute care centers provide care for 1.1 million frail and elderly and employ more than 1.5 million people. Rising liability costs drive up the cost of doing business and not only threaten access to care but could ultimately cost jobs,” said Mark Parkinson, President & CEO of AHCA.

The 2013 Long Term Care General Liability and Professional Liability Actuarial Analysis provides estimates of loss rates, or the cost of liability to the beds that care providers operate. The projected national 2014 loss rate, which is a combination of claim severity and frequency, is $1,940 per occupied bed. This means that an operator with 100 beds can expect $194,000 in liability expenses in 2014. (source AHCA)

From McKnights News service (an Online newsletter)- the rates are likely increasing because of growth in this sector.
Assisted living growth continues to be concentrated in specific markets, with almost three-fourths of new construction in 10 metro markets, according to new findings released Thursday at the National Investment Center for Seniors Housing & Care Industry annual conference in Chicago.
While there was concern last year about the rapid growth in assisted living, the most recent data indicates that “things have leveled off,” said Chuck Harry, NIC managing director and director of research and analytics.

“….. with 70% of assisted living construction in 10 top markets, and 22% of new construction in the New York and Houston regions alone. Houston's assisted living construction, for example, was nearly 17% of available inventory in the first quarter of 2013, and there were eight new communities scheduled to open last year.

Assisted Living Facility Business Continues to Grow

In total, the industry is worth around $330 billion, This niche has grown in spite of law suits, regulatory confusion, bad publicity, bad outcomes and poorly run operations.
And, the demand is driving the growth and professionalism of these centers and facilities.
Memory care continues to be a popular investment (look at the success of Lumosity) Continuing care retirement communities are renovating existing campuses; independent living/assisted living are adding units; and freestanding memory care facilities are being built.
In suburban communities, zoning laws are changing to allow conversion of homes to assisted living centers for neighbors to age at home sharing resources and cutting costs.
Insurance companies with the most business in the assisted living niche are starting to experience an increase in claims. the increase in claims leads to underwriting scrutiny, tightening, premium increases and occasional policy cancellations.

The typical new resident in assisted living is today an 84-year-old woman who is widowed and needs assistance with two Activities of Daily Living, according to the third edition of the NIC Investment Guide.

With growth in a sector comes increased claims and then premiums:

The carriers with the largest books of this business have the most information and the most exposure. Usually, rate increases means that these books are experiencing deteriorating profit margins . If rates are too low and losses add up, then carriers will increase the premiums.

Accounts with losses are non renewed. Just as with medical malpractice insurance, (as the industry saw and experienced in 2002 – 2005) losses are high, frequency rises and insurance companies become more selective. This results in Assisted Living cancellations; which means, you need a broker to go to the market for you to find competitive policies. The Surplus Lines Industry is expert at providing capital to fund insurance solutions in the health care professional liability industry for ‘substandard’ risks.

When a policyholder is non renewed, they must turn to this substandard, surplus lines market for insurance solutions. The fact is there are physicians who just have bad luck (or a run of bad luck) which results in more claims than the actuarial standard or norm.
When underwriters see more than one claim, or a very high settlement, in a market trending in that direction, they are likely to non renew the account.

In 2015, much discussion surrounded various skilled nursing facility accounts that saw new or worsening payouts on claims. In many of those cases, carriers either non-renewed or simply offered terms that would push the insured to seek out better options. There are accounts that are being discarded by carriers or forced to move, it means there are opportunities to find a specialty insurer to provide the affordable solution.

Strong Competition for Business

There are some pretty aggressive carriers seeking to write this business profitably. The incumbent insurance company still battles to retain the business. And, still premiums are edging up: When they do increase, agents and brokers must work hard to find the right price, complete coverage with stable, creative carriers.

Again reflecting the experience in the medical malpractice insurance market, it looks like insurance carriers for skilled nursing facilities struggled in 2015 to maintain their existing books profitably. There are still enough newer entrants in the last few years to make competition fierce among carriers. And, many carriers are able to allocate previous year’s surplus to hold down premiums at renewal.

However, market-leading carriers are also looking for ways to cancel or to better manage their unprofitable accounts. No carriers wants to admit that their books are unprofitable or only breaking even. They also don’t want to make dramatic changes to a whole book of business too quickly for fear of signaling a problem to their marketplace. So tension in the industry mounts amongst all carriers in a sector and then change happens all of a sudden.