Exploring the hardening insurance marketplace in 2021 and beyond

Authors: Alex Burton, Dan Gilhooly

Senior Living Market Report

As we enter 2021, a number of compounding factors are driving the current insurance marketplace. First, there has been a substantial increase in the number of large weather-related loss events. Second, interest rates remain near historical lows, and third, the industry is dealing with an increasing loss trend in liability lines. Each of these factors will continue to drive up prices and reduce coverage availability. Add a global COVID-19 pandemic and tightening in the reinsurance marketplace—the market is experiencing a high sense of uncertainty. This uncertainty is contributing to the feeling that this is a time where the market has entered into a new phase of recalibration. Many would call this recalibration a hardening market for certain lines of coverage and industries in the U.S.

This hardening market is an underwriting-driven marketplace. In a traditional hard market, capital (and consequently capacity) is reduced, thereby limiting the availability of insurance. This marketplace is driven by the need for underwriters to make a profit from underwriting versus relying on investment income. Carriers remain intensely focused on underwriting discipline, ensuring they secure the right terms and pricing on certain lines of coverage that have historically not performed from an underwriting standpoint.

The pace of the United States' economic recovery and the outcome of the active hurricane season could alter some of the underlying fundamentals of the current marketplace. However, in all likelihood, the conditions that exist today are not changing anytime soon, and it will take carriers some time re-underwriting their books of business to overcome the challenges associated with the current marketplace. Accordingly, all market indications point to a continuation of premium increases for the balance of the 2021.

Utilizing Gallagher Drive®, our proprietary data and analytics platform, our brokerage team can provide specific rate guidance for your line of coverage, industry and geography. Combined with deep expertise in your particular industry and business, Gallagher can help you navigate today's hardening market. Because of the highly nuanced nature of this market, it is imperative that you are working with an insurance broker who specializes in your particular industry or line of coverage.

General and professional liability

The year 2020 was the most challenging year the senior living industry has ever seen. COVID-19 created occupancy challenges across the industry, impacting top-line revenues along with increased expenses due to staffing challenges, infection control/ cleaning protocols, increased demand for PPE, and a general and professional liability insurance marketplace that was up between 25%–30% on average. These factors have put an enormous amount of pressure on the industry and, from an insurance standpoint, rate increases are positioned to continue throughout 2021.

Prior to COVID-19 and the last 18–24 months, 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. However, over the past five years, as loss cost trends continued to rise at an average of between 9%–11%, market rates remained mostly flat with slight increases in certain instances over that time period. When compounded, there was a significant gap in the rates insurers were charging compared to the losses they were experiencing.

The impact COVID-19 has had on the insurance market is substantial, as carrier exits have created capacity shortages resulting in a much more narrow pool of carrier options committed to the space. This has allowed the remaining carriers to push higher rate increases in an attempt to bridge the gap between current rates and expected losses, resulting in large rate spikes YOY.

Carriers are very concerned for expected increases in litigation we will see in 2021 as a result of the pandemic. There have already been a significant number of lawsuits filed, and more are being filed every day. However, on January 29, 2021, a federal court in the Central District of California issued a tentative order dismissing a COVID- 19-based lawsuit against a senior care facility based on application of the PREP Act. The complaint alleged the defendants failed to implement infection control measures and follow health guidelines that would have prevented the spread of COVID-19, which caused the death of a resident. The court found, however, that the PREP Act was a complete bar to the plaintiff's action and that the case should be dismissed.1 While this initial finding is a great victory for the senior living industry, and will hopefully set a precedent for future litigation and verdicts down the road, the court case ruling is currently on appeal and ongoing as of March 2021. This case should continue to be monitored, as the outcome may impact future litigation. Also, as cases are brought at the state court levels, there are varying positions on immunities granted to senior living and healthcare providers that will impact the rulings in these cases. A summary of the current immunity statuses can be found at the JDSPURA resources here.

In addition to the increases in rates, the majority of carriers have incorporated restrictions in coverage, like exclusions for pandemic/COVID-19/communicable disease. The underwriting guidelines have also increased significantly, with all carriers requiring additional COVID-19 supplemental applications/questionnaires.

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. The result of this underwriting approach is substantial increases for senior living operators due to the uncertainty of how COVID-19 may impact future losses and carrier profitability.
  • 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 but, in many cases, they are only providing options with a minimum deductible/SIR of $100,000 or higher.

Lastly, we are seeing higher utilization of self-insured programs, risk retention groups, group captives market carriers. These solutions require a very strategic approach to risk management, and can be extremely effective in reducing volatility and combating the hard market.

The chart below outlines the average rate variance we saw in the fourth quarter of 2020.

Senior Living Market Report Average Rate Variance Q4 2020

Umbrella/Excess liability

The umbrella/excess liability market has become more and more difficult, and has repeatedly resulted in increases that outpace the rate changes on the underlying primary. We are seeing a considerable shrinking of capacity, with most carriers reducing their limits to $5 million layers, and many carriers will not provide lead umbrella/excess liability terms over another carrier’s primary coverage layers, making it extremely difficult to build excess towers greater than $10 million.

The chart below outlines the average rate variance we saw in the fourth quarter of 2020.

Senior Living Market Report Average Rate Variance Q4 2020

Workers' Compensation

The workers' compensation marketplace for senior living operators had been the one bright spot in the insurance marketplace before COVID-19. However, throughout the second or third quarters of 2020, rates skyrocketed due to uncertainty regarding how various presumption laws and work-related claims would impact the senior living industry because of front-line workers’ potential exposure to COVID-19. This led to moratoriums and increases across the board over that time period. As we moved into the fourth quarter of 2020, information about the vaccine rollout became more apparent, and carriers gained a better understanding of their expected losses due to COVID-19; therefore, we saw a shift in appetite and a lift on those moratoriums, resulting in rates returning to pre-pandemic levels.

The chart below outlines the average rate variance we saw in the fourth quarter of 2020.

Senior Living Market Report Average Rate Variance Q4 2020


The 2020 property market continued to be a challenge for senior living providers due to a predominantly frame construction building profile, as many property carriers have struggled to remain profitable on this class of business.

Key property rate change drivers:

  • Property rates will continue to rise as the frequency of natural disasters continues to rise, including the wildfires on the West Coast; coastal hurricanes; earthquakes; water damage; convective storms across the Southeast, Midwest and Midsouth; and the recent winter storm surge across the country resulting in power outages, spoilage and pipe burst/water damage claims.
  • Rising loss trends and inadequate pricing has continued in the national account property space (total insurable values greater than $125 million), resulting in a lack of profitability for a number of carriers.
  • Changes in coverage terms and conditions in the property marketplace have been significant. Increasing deductibles, shrinking sublimits—especially in catastrophic exposed geographies (CAT)—and carriers’ conservative limit deployment can lead to less favorable terms and conditions for clients.
  • Historically, it was not uncommon to see property rates as low as $0.05–$0.075/$100 of values on senior living portfolios consisting of a blend of frame/noncombustible construction types. For stand-alone property placements, the starting point for frame construction has increased to around $0.15/$100, and underwriters are pushing for higher deductibles for all other perils, along with 1%–2% for wind/hail.
  • COVID-19 has created an increase of claims submitted by insureds seeking reimbursement for business interruption coverage due to lost revenues as a result of COVID-19, creating additional cost and uncertainty for property insurers and adding further pressure on rate increases.

The chart below outlines the average rate variance we saw in the fourth quarter of 2020.

Senior Living Market Report Average Rate Variance Q4 2020

Commercial auto liability

Despite several years of price increases in commercial auto liability, rates continued to increase in the fourth quarter despite a drop in claim frequency due to the COVID-19 pandemic.

Key drivers of the commercial auto liability market:

  • Loss costs are rising as new technologies make vehicles more expensive to repair. We expect carriers to continue to push rate increases across the board in commercial auto liability.
  • There is little to no appetite for monoline auto due to the resident/patient transport exposure presenting at senior living communities. This has created a need to take a portfolio approach to placing commercial auto liability coverage with another line of business.

The chart below outlines the average rate variance we saw in the fourth quarter of 2020.

Senior Living Market Report Average Rate Variance Q4 2020

Management liability

The Directors & Officers (D&O) marketplace has been distressed for several quarters, as average claims have increased substantially in recent years. The market's deterioration has continued with every aspect of the public company D&O marketplace being impacted, including premium, retention, capacity, attachment, and terms and conditions. The market for privately held companies is not nearly as hard as the publicly traded D&O market, although larger private companies may still see double-digit increases.

The chart below outlines the average rate variance we saw in the fourth quarter of 2020.

Senior Living Market Report Average Rate Variance Q4 2020

Conclusion: The future of the senior living industry

It is unknown what the full magnitude of the COVID-19 pandemic's economic impact will be overall, or what effect it will have on the insurance industry. However, the underlying fundamentals we see with the environment today are likely to continue into the foreseeable future, with no indications that the momentum is slowing. If anything, the market’s hardening in 2019 and 2020 will continue. Gallagher has a vast network of specialists that understand your industry and business, along with the best solutions in the marketplace for your specific challenges.

Reduce your risk. Contact us to learn more about our offerings and capabilities.

Author Information:


1 Gilbert Garcia et al. v. Welltower OpCo Group LLC et al., 8:20-cv-02250-JVS-KESx


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