Navigating a Challenging Residential and Long-Term Care Market

Posted on June 15, 2023

As much of the country moves on from COVID, the risks in the residential care market haven’t disappeared

The residential and long-term care (LTC) market was hardening leading into the new decade, even before the coronavirus outbreak in early 2020 caught the world completely unprepared. As COVID-19 disrupted the world, some of the hardest-hit populations lived in residential and LTC facilities, catching those facilities, their residents, and their insurance companies by surprise.

The losses this industry experienced scared away many insurance professionals, and allied health risks became much harder to insure. As much of the country moves on, moving on doesn’t mean the risks in the residential care market have disappeared.

The insurance companies that left the market are either staying out or are just starting to tiptoe back in, asking, “Is it safe?” Honestly, the answer is still unclear, but there are ways to move forward and seize opportunities without fully answering the question.

The challenges

Since March 2020, most residential care facilities have faced staffing shortages, which often limits admissions. Inflation and The Great Resignation have also made it hard for these facilities to find caregiving staff.

Nursing turnover is rising across the nation, with the national average by the end of 2022 at a whopping 52.51% for RNs.

Companies typically deal with these staffing shortages by either making do with lower staffing levels or hiring less qualified staff. Both can spell disaster for patients, their families, insureds, and insurers.

All these conditions can lead to a higher likelihood of errors, potentially resulting in lower quality care that compounds on itself. This opens LTC businesses up to costly lawsuits and insurance claims that can bring financial hardship, making it even more difficult to find insurance.

The demand

The future of residential care looks crowded, as the baby boomer generation—the largest generation in history—begins to need LTC. Many boomers remain active, delaying their entry into care facilities; but as they age, they will drastically increase the need for care. The national average of U.S. residents has increased by 3.4 years over the last 20, and most states’ median ages jumped considerably from 2020 to 2021. Our nation is aging, which will necessitate more residential care facilities over time to keep up with the need.

In Florida, this demand will be especially drastic: The state is projected to add 250,000 new residents every year until 2030, and over half of them will be 60 or older. In 2018, the State Director of AARP predicted that soon “we will wake up to a Sunshine State that is grayer than almost anyplace on Earth has ever been—a place where one person in four is 65 or older.” Current trends expect this to occur before 2030.

Despite potential demand increases, many facilities are limiting admissions as a way of dealing with staffing shortages, which may mean that many who need care will have difficulty finding suitable accommodations. Florida is already at 87% occupancy of the current facilities available, and with the number of residents needing care rising so quickly, it’s possible that demand could outpace supply. This would strain existing facilities and push new ones to open too quickly, without enough properly trained staff, adequate insurance, or all the above.

Florida is not the only state facing this concern. Maine is actually the state with the oldest average population, with a slightly higher percentage of its residents over 65 years old than those in Florida. Its long-term care facilities were nearing 80% occupancy as of October 2022, and over the last 10 years, it’s seen an 11% reduction in bed availability as facilities have closed. Its median age continues to rise, but the number of available beds for residential care continues to fall, setting another state up for a situation where demand will outgrow supply.

The opportunity

While it feels like a lose-lose situation for all parties involved, creative insurance professionals know solutions exist. Some field experts have recommended the more patient route, encouraging agents to submit accounts three months prior to renewal, or four to six months ahead of a new coverage period in order to find the best coverage. Frankly, this feels like an impossible request! Many insureds’ business plans don’t allow for that much time ahead of beginning operations before seeking insurance in the first place.

There are no concrete cures for the issues facing the LTC industry—insurers must take these new challenges into consideration, and the E&S market is uniquely positioned to do so.

At Aspera, we’re tackling the problem with creativity and consistency. For instance, we see that approximately a third of allied health submissions have claims to report on their loss runs, so we know we need a few different approaches to coverage while still addressing the risks. Additionally, our team has past underwriting experience, so we know exactly what questions to ask to ensure that a submission is ready to quote before it ever reaches an underwriter’s inbox. Finally, we aim to return quotes within 48 hours, ensuring that retail agents and their clients can have insurance solutions in place in a timely, realistic way.

Insurance solutions are never quick or easy in a market like allied health, but with patience and some out-of-the box thinking, they can be found.

Learn more in the Rough Notes Florida Special Report 2023.