Understand the Changes to Your Insurance Rates

by Jeff Shaw

Seniors housing owners and operators are dealing with dramatic increases in costs, but there are ways to both mitigate and plan for these additional expenses.

By Brian Jurutka

Since the beginning of the pandemic, property and casualty (P&C) insurance rates for seniors housing have increased significantly. The increase, however, has been driven not just by one factor, but by a combination of factors.  

To grasp the dynamics, it’s important to look at the two types of P&C insurance separately: Professional and general liability (PL/GL) and property insurance. 

PL/GL covers liabilities tied to the senior living business, including resident care risks and on-premise accidents. Property insurance shields against damages to real property caused by perils such as wind, rain and hail.

COVID, natural disasters make an impact

In the early days of the COVID-19 pandemic, which started in early 2020, PL/GL insurance drove the surge in costs due to increased risks associated with the uncertainties of the virus. As the situation evolved, property insurance rates took the lead in pushing up the overall insurance prices for seniors housing.

The pandemic presented a unique challenge, and seniors housing and care found itself at the epicenter. Insurers faced uncertainties estimating the risk associated with COVID-19. The anticipation of a surge in lawsuits and substantial claims led to a big unknown in estimating future risk, prompting insurers to either increase rates dramatically or reduce capacity in the market.

The labor shortage further fueled PL/GL rate increases, with staffing challenges contributing to higher risks and potential liabilities.

Despite the expected avalanche of COVID-related claims, the actual numbers have not yet materialized to the extent predicted, though cases continue to work their way through the court system. This delay is largely due to court closures during the pandemic and the subsequent backlog of cases in the system.

This situation has created attractive margins, luring insurers back who exited the market in 2020/2021 and attracting new entrants. As of late 2023, the seniors housing PL/GL space is witnessing new capacity, mitigating sharp pricing increases.

The surge in property insurance rates is not exclusive to seniors housing, but is part of a broader trend. 

Recent years have seen increased losses due to a higher incidence of natural disasters, translating into significant hikes in property insurance rates. Additionally, rising building costs contribute to higher replacement costs, resulting in increased premiums. 

The correlation is straightforward: if the insured value rises, so do the premiums. Insurers and reinsurers aim for risk-adjusted returns to attract capital, and these rate increases flow through to owners and operators.

How to moderate increases

Operators can play a proactive role in mitigating insurance costs. 

On the PL/GL side, setting clear expectations with the families of seniors housing residents and transparently documenting and managing incidents can reduce claims. Adequate staffing, low turnover and comprehensive training programs contribute to minimizing risks. 

Technology also emerges as a valuable ally, addressing common causes of claims such as falls and pressure wounds. 

However, the integration of technology should align seamlessly with staff workflows and capacity to avoid setting unrealistic expectations.

For property insurance, strategic building design and location choices can impact rates. Buildings designed to minimize environmental risks — such as those with concrete or steel construction, fire-resistant roofs and robust sprinkler systems — enjoy lower insurance rates. 

Property insurance rate increases are more pronounced in areas significantly influenced by natural catastrophes like tropical storms, tornadoes, wildfires, floods and earthquakes. Coastal areas and regions prone to environmental events bear higher insurance rates, influencing the cost burden for owners.

Stay informed

For property insurance trends, The Council of Insurance Agents & Brokers’ quarterly survey is a reliable source. The third-quarter 2023 report reveals changes in commercial property insurance over time, emphasizing the importance of staying informed amid the evolving insurance landscape.

The State of Seniors Housing (SoSH) report provides valuable insights into insurance expenses across the U.S. According to the 2023 SoSH, median insurance costs (property + liability + workers’ compensation) range from approximately 2 percent to 4 percent of total operating expenses. While this data offers a snapshot, analyzing trends over time requires caution due to variations in sample sets.

The increase in insurance rates for seniors housing and care since the beginning of the pandemic has multiple drivers and is influenced by a confluence of factors, including pandemic-related uncertainties, labor shortages, higher replacement costs and increased natural disasters. Owners and investors can navigate these challenges by adopting proactive risk mitigation strategies, leveraging technology and making informed decisions based on market dynamics and demand. 

Fluctuations in insurance markets, property location and construction types emphasize the importance of engaging with insurance brokers when evaluating investments in new markets. If you’ve had the same carrier for many years in a row, you should, at a minimum, re-evaluate to see if there are new entrants worth considering. There’s value in maintaining a long relationship. However, there may also be value in re-evaluating the relationship. 

Brian Jurutka is vice president, seniors housing at IMA Financial Group, one of the nation’s largest private commercial insurance brokers and majority employee owned, where he helps owners and operators in the space manage risk. Prior to IMA, Jurutka was president and CEO of the National Investment Center for Seniors Housing and Care (NIC).

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