Senior living operators encounter several challenges when placing commercial insurance, driven by the unique risks associated with senior living communities and the evolving insurance market. Key challenges include aging infrastructure, regulatory compliance, litigation risks, natural catastrophes, business interruption risks, property valuations, rising costs, and fluctuating market conditions. Staying informed on commercial insurance market trends is crucial for accurately projecting budget expenses, as insurance can be one of the top five largest expenditures for operators in the senior living space.
Starting in the third quarter of 2023, the general and professional insurance market for senior living has experienced a significant shift. The impact of COVID-19 on the industry turned out to be less severe than anticipated, as many operators avoided major losses due to court closures, which lead to a backlog of cases and significant delays. Consequently, claims were settled for much less than they would have been under normal circumstances, resulting in deflated losses compared to typical industry losses.
This perceived profitability attracted new entrants to the senior living sector, drawn by inflated prices and favorable loss history. Additionally, previously dormant markets began to ramp up operations, increasing competition and driving down pricing. As a result, operators are seeing savings on their renewal premiums and favorable quotes on new acquisitions.
Despite the current market conditions, some GL/PL (General Liability/Professional Liability) carriers, such as those that previously offered historically low rates, are withdrawing from the market due to unprofitability. While the market is softening now, this trend may not last indefinitely as certain carriers continue to exit due to insufficient margins.
Management Liability is currently experiencing a softening market, similar to GL/PL. Before COVID-19, carriers faced substantial losses due to the rise in business litigation and the associated defense costs. While D&O (Directors & Officers) underwriters remain concerned about uncertainties stemming from global tensions, inflation, supply chain disruptions, and the scaling back of government subsidies, the market has seen an influx of capacity with new carriers entering, though many are initially focused on providing excess coverage. The reduction in excess pricing has led some carriers to lower premiums across the tower, including for primary coverage, thus beginning to push down primary rates.
Regarding commercial property insurance, placing coverage with admitted insurers remains challenging due to persistent issues such as natural catastrophe losses and inflation. However, 2024 is emerging as a transitional period for the E&S (Excess & Surplus) market, thanks to favorable reinsurance treaties that are creating healthy market capacity, poised for growth, increasing competition, and rate deceleration.
In recent years, supply chain disruptions, particularly in steel and lumber, contributed to rising loss costs. Carriers responded by correcting building valuations, increasing their rates and pushing for per-location limits instead of blanket limits. With much of the work on building valuations now completed, the focus has shifted to Business Interruption (BI) values, which carriers view as critical data for mitigating risks amid a bleak hurricane forecast.
Admitted carriers still anticipate continual rate increases this year, along with higher wind, hail, and water damage deductibles. Additionally, many admitted carriers are reducing their appetite for areas prone to catastrophe exposures, pushing more risks into the E&S market. Given that many senior living buildings are now 20 to 40+ years old, admitted carriers require detailed information on roof, plumbing, sprinkler systems, electrical, and structural improvements. Investing in regular updates and maintenance, along with robust risk mitigation, will help operators manage and reduce insurance premiums.
The commercial insurance market for senior housing and living is in a state of flux, influenced by both lingering effects of the pandemic and broader economic factors. While the current environment presents opportunities for cost savings and increased competition, the long-term outlook remains uncertain. Industry stakeholders must stay vigilant, adapting to changes in underwriting practices, market conditions, and emerging risks. By understanding these trends and proactively managing their insurance portfolios, senior living operators can better navigate this evolving landscape, ensuring they are well-positioned for future challenges and opportunities.