Senior Living Market Update – Spring/Summer 2021

An analysis of the current market and guidance for a successful renewal outcome

As we reach the midpoint of 2021, the market remains very challenging and is pretty similar to 2020. While there is optimism toward some moderation in premium increases, it has yet to be widely seen in year-to-date 2021 renewals. Across the industry, renewals for many companies have been upwards of 20%, which was unsettling after an already difficult year. What has made this market even more troubling is that there is no single event to point to as the cause. Instead, a confluence of factors have challenged the industry, including social inflation, increased storm activity and pandemic losses. Additionally, carriers' ability to offset these results through investment income remains a challenge due to the lower interest rate environment.

Unfortunately, these factors likely will impact the market for some time. Despite pushing significant rate increases across most lines in 2020, the industry's combined ratio hovered around 100%. Accordingly, all market indicators point to a continuation of premium increases for the balance of the year and possibly into 2022.

However, there is optimism for some moderation in certain lines as we move into the latter half of 2021. Many carriers have reported stronger results in the first quarter of this year, but that progress must be sustained for several quarters to see a market shift. The challenges have not kept out new capital and the market is seeing some expansion, which will inevitably lead to more competition. Finally, despite across-the-board increases on January 1 reinsurance renewals, the rate increases ultimately ended up at the lower end of initial projections.

In this report, we will analyze the market conditions for each major line of coverage and offer guidance to help you ensure a successful renewal outcome.

General and Professional Liability

The first quarter of 2021 remained challenging for most senior living organizations renewing during this time because the rate impact of COVID-19 hadn't hit these renewals yet with its emergence in late March of 2020. However, as we moved into April and May, rates continue to be challenging, but not near the levels of what we have seen over the last 12 months. As the vaccination rates of senior living residents and staff continue to increase, causing case counts to decline, the outlook is considerably improved. These results, along with the majority of carriers issuing exclusions for COVID-19, have created a more stable environment from a rate perspective.

Prior to COVID-19, we had been in a soft market for about 15 years, with year-over-year (YOY) average renewals achieving flat to decreased rates during the majority of that time. As loss cost trends have continued to rise annually plus the significant amount of unknown incurred but not reported (IBNR) losses, carriers are still in need of rate increases in most cases. However, the increases are becoming more moderate compared to what was seen in 2020, as carriers were able to achieve more appropriate rates last year. Also, there has been an emergence of capacity as new carriers and Risk Retention Group (RRGs) have begun entering the space.

Key carrier considerations:

Underwriters are looking at every account on a case-by-case basis, and using conservative actuarial modeling and predictive analytics to develop their pricing/structures.
Carriers are evaluating their quality/compliance policies and procedures much more closely, along with their infection control plans and formal clinical risk management programs.
There is a continued push to move coverage forms from occurrence to claims made. This change in form will result in further increase considerations YOY, as organizations will see step factor increases for three to five years from the retroactive date. Note: Step factors are the annual expected increases to reflect the increase in exposure as more time passes from the retroactive date.
Most carriers will no longer offer first-dollar programs and are starting with deductibles of $25,000 or $50,000 and, in many cases, a deductible/SIR of $100,000 or higher.

Lastly, we are continuing to see higher utilization alternative risk solutions through captives. These solutions require a very strategic approach to risk management, and can be extremely effective in reducing volatility and combating the hard market.