Insurance premiums have seen rises and falls throughout 2023, depending on what is being covered, but the volatility of rates is unlikely to be going away anytime soon.

Some areas of coverage, such as directors and officers insurances, auto insurance and workers compensation, have seen stabilization since the time of Covid. Even general liability has somewhat stabilized, although it is still one of the major expenses for senior housing operators.

Jurutka added that the U.S. has seen billions of dollars this year in claims as a result of natural disasters.

For senior living operators, property insurance premiums are a rising expense item during a time when many cannot afford to let costs run out of control. But the pain they are feeling is nothing new. In fact, operators have seen property insurance cost increases for the last 23 consecutive quarters, according to Michael Pokora, co-leader of Marsh’s senior living and LTC industry practice. Just looking at 2023, there was a 19% increase between the first and second quarter of the year.

“That’s not going to impact not just senior housing, but kind of all of real estate,” Pokora said.

The drivers of increased premiums

Insurance costs have been on the rise for some time. That was reflected earlier this year in a NIC executive insights survey, which found that the majority of operators across all care types — between 86% and 95% — reported property insurance premiums “significantly” or “slightly” above where they were a year prior.

“Catastrophic climate-related disasters affect greater geographic areas and leave years of disaster recovery in place,” wrote NIC Senior Advisor and former NIC Chief Economist Beth Mace in a September issue of the organization’s monthly “Insider” newsletter. “Coastal states have been especially vulnerable, but few regions have been entirely spared and virtually every group insured has been affected by higher premiums.”

There are many factors that have been leading to the continuous increasing costs in insurance premiums, particularly when looking at property and general liability coverage.

Property insurance cost increases can be attributed to something as simple as the location of the company being covered. As an example, a property in Florida, Texas or California will simply cost more due to the nature of disasters in those states, such as hurricanes or wildfires, Pokora said. The size of a company’s portfolio is also a major factor, as larger companies must often use multiple carriers to cover their communities.

Those larger programs using multiple carriers to fit their insurance needs saw property premium increases around 24% compared to last quarter, while single carriers saw around 14% property insurance increases. Among Marsh’s clients, 84% saw increases in Q2.

Some operators are leaning on the size and diversity of their portfolios to help mitigate some of the general increases seen from property coverage. Watermark Retirement Communities General Counsel Benjamin Scoll said he believes this is the case for Watermark, as the communities in lower-cost areas for insurance help offset the increases in higher-risk — and therefore higher-cost — zones.

“With having a national presence … we’ve got some buying power because we can take on more risk,” Scoll said.

However, even that cannot help lower costs in locations like Florida, where Scoll said carriers may not accept or underwrite in certain areas of the state.

The construction of a community factors in with the location as well, with structures made with wood frames being more subject to damage when presented with wind, rain or flooding, Jurutka said.

The number of damages from storms over the last three years, including 2023, has totaled in over $100 billion in insured losses, according to Jurutka, which seems to be the largest determining factor in rate hikes.

“It’s also been the breadth of storms across wide geographic areas, whether they’re fires, hail storms, wind storms and so forth,” Jurutka said.

According to Jurutka, an additional factor for premiums is the reinsurers, who have been increasing rates and passing those costs to the clients.

“They take the brunt of a lot of the natural disasters because the insurers themselves want to insure their losses above certain amounts,” Jurutka said. “It’s certainly been a challenge.”

Looking ahead to the future, property insurance premiums seem to only be on the rise as a whole as natural disasters continue to increase. While general liability and personal liability are anticipated to see lower increases in comparison, Jurutka said he thinks there will be continued increases in those areas, as well.

However, pending litigation trends for these types of insurance could “prove problematic” in the near future, Pokora said, as the limited number of providers in the space could take a hit if one drops off.

“We could see that market turn a little bit,” Pokora said.

In the coming year, Marsh is predicting a flat 5% to 10% increase for personal and general liability increases. Predicting much further out than that becomes difficult due to the current volatility of the market, he added.

Mitigating risk the key to controlling costs

Obviously, many“macro” factors like natural disasters are out of operators’ control. One of operators’ most straightforward tools to deal with rising property insurance is taking on greater risk through higher deductibles for a lower overall premium. However, this method only does so much, as “the rise in premiums and replacement costs are outpacing the variables” according to Stoll.

These kinds of costs are entirely out of operators control due to the required nature of having insurance in the first place.

“The industry as a whole has just gotten more expensive,” Stoll said.

Although they seem to be on the rise in the coming year as well, general liability and personal liability do have factors that can be lowered, even if it is just a little bit. For instance, Revel Communities COO Dannette Opaczewski noted during a recent appearance on SHN+ TALKS that she has tried to “get creative” in the face of rising insurance premiums.

“You just really need to have a great risk manager working with your group, a broker that understands who you are and why you want what you want, and then leverage your claims against what you do,” she said. “Don’t settle.”

At Watermark, insurance cost mitigation comes in the form of “having good systems in place” so personnel are trained and prepared in case of an emergency, and the responsiveness helps lower some of the costs when that plan is brought to insurers.

“If we are keeping [safety features] up to date, performing routine maintenance and staying on top of third party vendors to assist and perform their functions, it helps keep the risk profile lower,” Stoll said. “If a pipe bursts, we’re on it within five minutes instead of five hours and that can be the difference between a small claim and a huge claim.”

Pokora said he has seen a shift to become less reliant on the commercial insurance marketplace, and he noted an increase in the use of captives in recent years. The use of captives includes a company creating their own insurance agency with the help of an actuary and based on industry data, companies forecast the premium they need to fund for anticipated losses.

“It is more representative of the operator’s own experience versus being pooled with the insurer and all other operators,” Pokora said.

Additionally, operators can seek out accreditation from third party associations that verify that procedures are being followed.

“That is going to indicate that you are a lower risk relative to others,” Jurutka said.

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