The global COVID-19 pandemic challenged senior living and long-term care owners and operators to manage heath, financial and operational risks at a scale the industry has never before experienced.
And while the industry must continue to remain vigilant of pandemic risks, Michael Pokora, leader of Marsh’s Senior Living & LTC Industry Practice, stresses that three emerging risks also deserve close scrutiny from owners and operators. They are:
- Climate change
- Cyber threats
- Emerging litigation
Climate change is the No. 1 emerging risk for senior living and long-term care owners and operators because it has both immediate financial costs and long-term operational impacts. Rate increases in the property insurance market can be directly tied to the increased frequency and severity of events related to climate change.
“We have had 20 consecutive quarters of property rate increases, and we just published our Q3 data showing another 8% increase in Q3,” Pokora says. “One of the main factors driving the increase in senior care rates the past 20 quarters has really been around climate related issues: wildfires, flooding and now Hurricane Ian.
“Property valuation increases and supply chain issues have also been a big focal point for insurers. The inflationary environment and labor shortages have had a significant impact on the value of property-related claims as they are adjusted. It seems as though increased construction costs will continue into 2023, which could continue to drive up property valuations and might lead to insurance carriers pushing for higher premiums and increased deductibles for catastrophic events.”
Mitigating the risks of climate change starts with preparation. Storm preparation and evacuation procedures at senior living and long-term care facilities have shown great improvement in the last five years, Pokora notes.
The most popular areas for retirement and senior living facilities are also some of the most natural disaster-prone areas. Owners and operators must ensure they rethink how they are constructing facilities and how they can be more resilient.
“I don’t believe seniors are going to change where they spend their golden years. It will tend to be warm areas where fires burn and wind blows,” Pokora says. “As we start thinking about resiliency around some of these natural disasters, we need to be challenging ourselves, not only from a risk management perspective, but from a training and a construction perspective.”
Senior living communities frequently contain exactly what cyber criminals are seeking: personal data, financial transactions, medical data and contact information for residents, staff and family members. Not only is there a treasure trove of data for hackers, but senior living facilities are relying more and more on digital records to manage medications, track falls and serve their clients.
Overall, there has been a 23% increase in ransomware attacks against businesses since 2020, Pokora says — and senior living and long-term care communities are not immune to this trend.
“Back in 2018, the average demand was around $976,000 and of that, very little of it was paid,” Pokora says. “Fast forward to 2021, the cyber demand on average was $11.9 million with $8.3 million paid.”
This increase in frequency and severity of ransomware attacks is helping drive large increases in premium costs for cyber insurance. Last year, policy renewals faced 100% or higher premium increases. This year, those renewals are averaging 60% increases.
“The problem that we have here is the retreating insurance marketplace,” Pokora says. “There are fewer carriers that are writing cyber coverage right now, and those that are writing the coverage are decreasing the limit that they’re putting out there, and they’re also increasing their premium significantly.”
Emerging litigation trends
The frequency and severity of claims against senior living and long-term care owners and operators are increasing, driving up the total cost of risk for these companies.
- Increase in claims costs: The cost of a claim in the assisted living environment is now exceeding the cost of a claim in a skilled nursing facility. A recent study by CNA shows that the average assisted living claim in 2021 was $267,174, which is 9% more than a claim in a skilled nursing facility. Marsh is developing a deeper dive into claims trends that will be available in early 2023.
- Uptick in COVID claims: There are approximately 500 lawsuits against health care facilities pending now, with 75-80% of those cases against facilities providing senior-related care. This is nearly double the volume in previous years.
“What’s interesting is plaintiff counsel is getting creative in how they’re pleading these cases,” Pokora says. “For example, the insurance carriers have carved out COVID protection in the general and professional liability. To get around this policy exclusion, plaintiff counsel will pivot away from COVID being the cause of the claim and argue the claim was the result of some other incident or event that is covered in the insurance policy. This is an area that we’re watching very closely right now as we start bumping up against the statute of limitations for filing COVID related claims.”
The rates for general and professional liability policies for senior living and long-term care owners and operators have been relatively flat or, in some cases, decreasing despite these factors. However, many owners and operators have been increasing deductibles and retaining more risk to help keep premiums from increasing. Pokora says these companies should work closely with their risk advisors to ensure they have the right policies and procedures in place to manage this retained risk.
Senior living and long-term care owners and operators who want to control their risks and insurance costs in 2023 should remain vigilant on risk management discipline and litigation management, Pokora notes.
“The property market has the potential to be very disruptive and bifurcated for those with assets in CAT-exposed areas,” he says. “There will be a flight to quality for insurers and it will be critical that clients differentiate themselves to underwriters. We encourage clients to meet the underwriters to tell their story around preventative maintenance, capital expenditures and disaster preparedness.
“There are alternative risk financing structures that will allow for more retained risk to offset these anticipated premium increases. We are entering a market where all options should be reviewed to find the optimal structure that meets an owner or operators risk appetite.”
This article is sponsored by Marsh. To learn more about how Marsh can assist in your risk management efforts in 2023, visit Marsh.com.
Alice J. Roden started working for Trending Insurance News at the end of 2021. Alice grew up in Salt Lake City, UT. A writer with a vast insurance industry background Alice has help with several of the biggest insurance companies. Before joining Trending Insurance News, Alice briefly worked as a freelance journalist for several radio stations. She covers home, renters and other property insurance stories.