Senior Living Market Under Pressure

November 19, 2018

The senior living and long-term care market is under pressure. Prices in this market continue to harden, ranging from +5 percent to +30 percent, due in part to rising frequency and severity of claims. That trend is leading some carriers to exit the market. In this interview with Insurance Journal’s Andrea Wells, John Atkinson, managing director of the senior living and long term care, Willis Towers Watson, answered a few questions about market conditions today and what’s driving some challenges.

The senior living market is undergoing some transformation. Where are you seeing challenges?

John Atkinson: The part that’s really hardening is the general and professional liability sector….

The general professional liability sector has undergone a lot of pressure over the last 18 to 24 months. We started seeing it become much more intense in Q2 and Q3 of last year, and that’s continuing to develop into significantly greater pressure on rates, and some constriction of capacity. There have been some notable exits from the marketplace and that has resulted in fewer options, particularly for certain size operators – larger operators. The appetite for the larger operators is a little bit less robust than the smaller regional operators, which I think tend to enjoy more underwriting favor. It’s a little bit of a mixed bag, but generally speaking, we are seeing a significant amount of pressure on rate.

Given some recent exits in the large operator space, what markets are left to focus on it?

Atkinson: London remains a strong player in the mid- to larger-size operators, although London is undergoing a bit of a change in how it views certain lines of business. There’s more pressure on Lloyd’s syndicates by regulators in London so not all of their business plans have been approved. Not just in the healthcare/long-term care sector, but property.

They’re all under pressure to make sure that they’re performing better. But London does remain a good marketplace for this business.

Ironshore, Berskire, CNA are strong players in the large account space. And we see other carriers that tend to be a little bit more focused on the middle market or smaller regional operators. For example, Swiss Re has introduced a product in the marketplace.

They are becoming a factor in terms of new capacity. Church Mutual is expanding its appetite in the space. MMIC is expanding its appetite.

Nationwide is another company that’s expanding its appetite in the space…Another larger account underwriter is MedPro, a Berkshire company, and Berkshire, both compete in this space separately.

There are carriers who have publicly announced they’re no longer writing this kind of business. Markel is not writing North American senior living business on a primary basis. Markel’s Bermuda operation, for excess casualty, will continue to write in this space, but the U.S.-based Markel business is basically out of writing senior-living/long-term care…Lexington, part of AIG, is no longer writing this business, and they publicly announced that.

Willis Towers Watson’s recent report, “Marketplace Realities 2019,” shows the senior living and long-term care market seeing prices continue to harden some +5 to +30 percent. What’s driving that trend?

Atkinson: The average severity per claim is increasing fairly significantly, and frequency is also increasing. For the first time in the history of the space, we see the average severity of an assisted living claim eclipsing the average severity of a skilled nursing claim. So you have that higher acuity venue in skilled nursing, but in assisted living, the claims are trending higher…Underwriters are starting to see that losses are trending poorly, but they don’t really have a good handle on why other than they know that certain venues are performing badly. So rates are going up, but it was a little bit unexpected. We started seeing it in 2015 and 2016.

There have been increases in construction for senior living facilities in recent years. How is that affecting the facilities?

Atkinson: There has been a significant amount of development over the last four or five years. If you look at the public statements of the publicly-traded operators, you will hear them all talk about the fact that there’s overcapacity. So the occupancy is generally down, primarily because of increased inventory…There’s still good demand, but there are occupancy pressures which are driving a challenging operating environment for a lot of these companies today…One thing to understand about the sector is you’re looking at significant workforce development issues that the industry’s facing. You have an industry that is traditionally plagued with high turnover, a growing wage environment, and you have a challenging occupancy scenario, so that does put operating pressure on these companies. That increases expenses at a time when your top-line revenue is being constrained by these occupancy challenges. So we have been working very closely with our clients to really focus on risk management.

What area of risk management is most helpful in reducing claims in this sector?

Atkinson: Falls are the number one driver of claims in the industry. It’s the highest frequency of claims and they tend to be, not necessarily the highest severity, but they’re always within a hair of the highest severity. So when you can impact the number of falls, how you manage a fall, a resident who’s had a fall, after they’ve had a fall, you can really minimize the impact of these types of claims which will drive down your loss cost. Our clients are proactively trying to engage in strategies to improve their best practices and drive down the incidents of loss and put in the quality of care. When they do that, they have the ability to take on a little bit more risk so they’re taking on larger retentions, and they’re able to manage their costs effectively.

There are certain venues, regions of the country, that have been traditionally more litigious and difficult for this sector. Has that changed over the years?

Atkinson: Traditional urban areas where we started to see significant litigation patterns beginning in this sector in 1999-2000, Miami, Broward County, Los Angeles, now what we’re starting to see…is that these trends are spreading out into the suburbs and exurbs of these areas. So, for example, Cook County used to be the notorious Illinois venue for medical malpractice. Well now, we’re starting to see the same negative trends in those suburban and exurban areas. Carriers are seeing it in their books…There is also pressure on auto rates. Within the senior living sector, what compounds that, is the fact that residents are being transported in multi-passenger vehicles, and if they’re not properly secured in those vehicles, a sharp turn can result in a resident being dislodged from their seat, falling in the vehicle and sustaining an injury. You don’t even ever have to have an auto accident to have an auto claim. So we see more pressure on the auto line of business, which is already distressed. But you know, the good thing is that you can manage the risk. You can become better and you can improve the quality of life for residents and improve your operations and lower your costs.