The Influence of Changing Factors on Senior Living and Long-Term Care Facilities

Senior living and long-term care facilities (aka communities) are subject to various factors that continually evolve and impact their operations.

Joe McKnight, J.D.



Senior living and long-term care facilities (aka communities) are subject to various factors that continually evolve and impact their operations. These factors include social movements, cybersecurity risks, and the global economy, reinsurance conditions, among others. It is no surprise that these elements also have implications for the insurance market that covers this industry. Let's explore how insurers approach senior living and long-term care facilities in light of the many changes witnessed in recent years.

Unique Nature of Senior Living and Long-Term Care Facilities

Senior living and long-term care facilities have been the subject of numerous reform discussions in the United States, particularly in California. These facilities play a vital role in the quality of life for many citizens, providing comprehensive care that addresses physical, medical, emotional, and psychological needs. The distinctiveness of these properties lies in the fact that they go beyond mere housing and operate under different standards. Operational excellence, loss exposure, risk management, clinical policies and procedures, and claims management are essential considerations specific to these facilities. They face distinct habitational risks that set them apart from other property types.

Different Approach to Insurance

Given the unique characteristics of senior living and long-term care facilities, the insurance industry approaches them differently compared to other properties. This specific insurance strategy does not hinder owners from adequately and economically protecting their properties, contrary to some perceptions. Instead, it establishes guidelines that owners of these facilities must understand and adhere to.

Understanding the Insurance Landscape

The global pandemic has placed senior living and long-term care facilities under scrutiny, and the uncertain economic conditions have presented challenges in the insurance market. Consequently, insurance underwriters have become more cautious when placing policies for these facilities, and fewer carriers are currently writing policies for the industry. These circumstances have made it more challenging for owners to secure favorable insurance coverage.

Impact of the Global Pandemic

The COVID-19 pandemic severely disrupted the lives of residents and staff members in long-term care facilities, particularly because the virus disproportionately affected the elderly, who constitute a significant portion of the population in such facilities. The rapid spread of the virus within these facilities turned many of them into COVID-19 hotspots. This exposure led to an increase in litigation, with some individuals questioning the level of care provided by senior living facilities. The rise in legal matters has affected premium pricing trends.

The Hardening Insurance Market

The insurance market operates in cycles, characterized by periods of expansion and contraction. During a soft market phase, coverage is broader, premiums are lower, and underwriting criteria are more relaxed, with increased capacity and competition among insurers. In contrast, a hard market phase involves reduced capacity, stricter underwriting criteria, and higher premiums. Senior living and long-term care facilities are particularly impacted by these trends. Unfortunately, recent events have contributed to a hard market environment.

Claims Trends

Unsurprisingly, during a pandemic, insurance claims are predominantly related to COVID-19. However, the increase in claims activity is not solely due to the pandemic, as many policies already exclude coverage for infectious diseases. Instead, claims primarily stem from falls, wounds, and violations of patients' rights. General liability and professional liability insurance are heavily relied upon, with the latter often being one of the most significant expenses for long-term care facilities.

Regulatory and Compliance Issues

The pandemic created challenges in terms of finding an adequate number of skilled workers for long-term care facilities. This issue has led to compliance gaps with local, state, and federal regulations. Insurance carriers closely scrutinize regulatory and compliance issues, which can influence future underwriting decisions.

Looking Ahead

The past few years have been challenging, with ongoing difficulties affecting our daily lives. However, as the long-term care industry continues to recover, there is hope for a brighter future. Change is inevitable, and the insurance industry's cyclic nature will eventually shift toward a more favorable.