The global COVID-19 pandemic has challenged senior and long-term care residence owners and operators to manage health, financial and operational risks on a scale the industry has never seen before.
And while the industry must continue to remain vigilant in the face of pandemic risks, Michael Pokora, head of Marsh’s Senior Living & LTC Industry Practice, points out that three emerging risks also deserve careful consideration by owners and operators. They are:
- Climate change
- Cyber threats
- Emerging disputes
Climate change is the #1 emerging risk for owners and operators of seniors and long-term care homes, as it has both immediate financial costs and long-term operational impacts. Rate increases in the property insurance market can be directly linked to the increased frequency and severity of weather-related events.
“We’ve had 20 consecutive quarters of increases in housing rates, and we just released our third quarter data showing another 8% increase in the third quarter,” Pokora says. “One of the biggest factors driving the rise in elder care rates over the last 20 quarters has really been climate-related issues: wildfires, floods and now hurricane Ian.
“Increased property values and supply chain issues have also been on the minds of insurers. The inflationary environment and labor shortages have had a significant impact on the value of property claims as they adjust. It looks like rising construction costs will continue through 2023, which could continue to drive up property valuations and could lead insurance companies to ask for higher premiums and increased deductibles for catastrophic events. .
Mitigating the risks of climate change starts with preparation. Storm preparedness and evacuation procedures in seniors’ residences and long-term care facilities have shown great improvement over the past five years, Pokora notes.
The most popular areas for nursing homes and senior residences are also among the areas most prone to natural disasters. Owners and operators need to make sure they rethink how they build facilities and how they can be more resilient.
“I don’t think seniors are going to change where they spend their golden years. These will generally be hot areas where the fires are burning and the wind is blowing,” says Pokora. “As we start to think about resilience in the face of some of these natural disasters, we need to challenge ourselves, not only from a risk management perspective, but also from a training and construction perspective. .”
Retirement homes often contain exactly what cybercriminals are looking for: personal data, financial transactions, medical data, and contact information for residents, staff, and their family members. Not only is there a treasure trove of data for hackers, but senior living facilities are increasingly relying on digital records to manage medications, track falls, and serve their customers.
Overall, there’s been a 23% increase in ransomware attacks on businesses since 2020, Pokora says — and seniors and long-term care communities aren’t immune to this trend.
“In 2018, the average demand was around $976,000 and of that amount, very little was paid,” says Pokora. “Fast forward to 2021, cyber demand averaged $11.9 million with $8.3 million paid.”
This increase in the frequency and severity of ransomware attacks is helping to drive significant increases in premium costs for cyber insurance. Last year, policy renewals faced premium increases of 100% or more. This year, these renewals have increased by an average of 60%.
“The problem we have here is the decline in the insurance market,” says Pokora. “There are fewer carriers buying cyber coverage right now, and those who buy the coverage are reducing the limit they offer, and they’re also increasing their premium significantly.”
Emerging Trends in Litigation
The frequency and severity of claims against owners and operators of seniors’ residences and long-term care are increasing, driving up the total cost of risk for these businesses.
- Increase in claims costs: The cost of a claim in an assisted living setting now exceeds the cost of a claim in a skilled nursing facility. A recent CNA study shows that the average assisted living claim in 2021 was $267,174, 9% higher than a claim in a skilled nursing facility. Marsh is developing a more in-depth claims trend analysis that will be available in early 2023.
- Increase in COVID claims: There are approximately 500 lawsuits pending against health care institutions, 75-80% of them against institutions providing care for the elderly. This is almost double the volume of previous years.
“What’s interesting is that plaintiffs’ attorneys are getting creative in how they argue these cases,” Pokora said. “For example, insurers have carved out COVID protection in general and professional liability. To circumvent this policy exclusion, the plaintiff’s attorney will move away from COVID as the cause of the claim and argue that the claim was the result of another incident or event covered by the insurance policy. This is an area we are watching very closely at the moment as we begin to run into the statute of limitations for filing COVID-related claims.
General and professional liability insurance rates for owners and operators of seniors’ and long-term care homes have remained relatively stable or, in some cases, have declined despite these factors. However, many owners and operators have increased deductibles and retained more risk to prevent premiums from rising. 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.
Owners and operators of seniors and long-term care homes who want to control their risks and insurance costs in 2023 should remain vigilant about risk management discipline and litigation management, Pokora notes.
“The real estate market has the potential to be very disruptive and bifurcated for those with assets in CAT-prone areas,” he says. “There will be a flight to quality for insurers and it will be essential that customers differentiate themselves from underwriters. We encourage customers to meet with underwriters to tell their stories about preventative maintenance, capital expenditures and disaster preparedness.
“There are alternative risk financing structures that will retain more risk to offset these anticipated premium increases. We are entering a market where all options must be considered to find the optimal structure that meets an owner’s or operator’s risk appetite. »
This article is sponsored by Marsh. To learn more about how Marsh can help you with your risk management efforts in 2023, visit marsh.com.
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