The insurance market for social service facilities on both endsof the age spectrum is experiencing the same soft market conditionsalready dominating most lines of commercial coverage. Indeed, thegrowth in the eldercare sector in particular is drawing so muchunderwriter attention that the likelihood of a pricing turnaroundanytime soon appears slim.

While the economy is taking itstoll on risks in both the eldercare and daycare fields, one expertmentioned home health care professionals as an exception, citingmany new startup facilities over the last 12 months. However, thisobserver warned there are so many providers targeting one of theeconomy's few growth sectors that he does not know if rates willever harden again.

“Any agent out there looking to go for a growing area, this isthe place to be. I don't see it leveling off soon,” according toDavid Derigiotis, professional lines underwriter in wholesalebroker Burns & Wilcox's Specialty Risk Division inMichigan.

Eldercare business has exploded over the last 14 months,according to Mr. Derigiotis, who attributed this to the agingpopulation in the United States.

The jump has not been specific to any one area, he added, notingthat Burns and Wilcox “sees business coming in from branches allover the country.”

Mr. Derigiotis said he saw skilled nursing facility risks comingin at first, but observed there has been a transition to homehealth care as many in the aging population have decided they donot want institutional care if they can possibly avoid it. “Peoplewant to stay in the comfort of their own home,” he explained.

As for the risks in writing home health care business, Mr.Derigiotis said the niche poses many of the same exposures asskilled nursing facilities–claims for injuries or patient abusecarry over into home care.

The excess and surplus lines market has been so aggressive ingoing after this business that Mr. Derigiotis said he does notbelieve the soft market will ever subside. He said some standardmarkets are even entering the competition for these risks, addingthat E&S carriers have “a tough time competing againstthem.”

That's a symptom of the soft market in general, according to Mr.Derigiotis.

“Admitted markets are gobbling up risks better fit for excessand surplus, like this,” he said.

Brian Lindahl, senior vice president in Brown & Brown'sDaytona, Fla., office, said “the market is as soft as I canremember it being in 15 years–maybe longer.” He added prices are“down dramatically” in multiple states, and there is plenty ofcapacity.

Today's abundant capacity and competitive pricing for eldercarerisks is a dramatic shift from the late 1990s, when a challenginglegal environment chased most insurers from the niche, according toMr. Lindahl. Using Florida as an example of what was also occurringin other states, he recalled that the lawsuit issues worsenedthroughout the 1990s and reached a peak late that decade.

For insurers, he said, “loss experience went from good toawful.” Many carriers exited the marketplace, with some large onesthat were active in writing eldercare risks–such as Continental, StPaul, The Hartford and Lloyd's–feeling the brunt of the losses, henoted.

Tort reform laws in Florida and other states have since helpedthe insurance market recover, encouraging carriers to re-enter themarketplace, explained Mr. Lindahl, who added that eldercarefacilities have emerged from the hard times as better risks. Afterhaving managed their own claims, many facilities now understandinsurance and are better partners, he noted.

They are, he said, in tune with the services provided byinsurance carriers and brokers, and work more effectively withtheir insurance partners.

Mr. Lindahl said the E&S market will typically take upprofessional and general liability for skilled nursing homes,continuing care retirement communities and assisted livingfacilities. Even when standard markets do write liability coverage,he added, they do it on nonadmitted paper.

Other coverages for such facilities–such as auto and propertyinsurance–may find a home in the admitted market, Mr. Lindahl said,noting that property in particular is considered to be a good risk,as someone is on the premises 24 hours a day, seven days a week,and the properties are scrutinized by state regulators such as theAgency for Healthcare Administration in Florida–which requiresproperty safety surveys.

Such surveys are “almost like an underwriting tool forinsurers,” he said.

He added that buildings are usually built to good code–resistantagainst catastrophes where they need to be–and almost every staterequires full sprinkler systems.

Auto risks, Mr. Lindahl conceded, are a bit harder to place,while noting that some boutique carriers will write them, as wellas standard carriers such as Fireman's Fund.

Workers' compensation has “gotten a lot better” at underwritingthese facilities, according to Mr. Lindahl, as nursing homes haveimplemented programs that have reduced loss severity. Hespecifically mentioned reducing reliance on manual lifting of theelderly.

Professional liability is the biggest risk for skilled nursinghomes and continuing care retirement communities, warned Mr.Lindahl, as they deliver a high level of care to residents.Professional and general liability will generally be written underone program, with the other coverages placed elsewhere, hesaid.

For assisted-living facilities, professional liability coverageis not as big a factor as it is for skilled nursing homes andCCRCs, Mr. Lindahl explained, because the residents leave theassisted-living facilities and go to nursing homes when they needthat level of care. Assisted-living facilities pay about a third ofwhat nursing homes and CCRCs pay for liability coverage, henoted.

Independent living facilities have no professional liabilityexposure, according to Mr. Lindahl, as the front desk will dial 911in the event medical assistance is needed. However, he warned thatthere is not a lot of capacity for independent living facilitiesbecause they are “sort of in nowhere land”–between the insurancemarkets for eldercare facilities and markets for apartments.

The slumping economy has had different effects on each type ofeldercare facility, Mr. Lindahl said. For nursing homes, he notedthat 65-to-70 percent of revenue is Medicaid-driven, and so theyare “more isolated from upturns and downturns” in the economy.However, he warned that they have to live within the annual budgetcycles in their states, which can be easier or more difficultdepending on the state.

Burns & Wilcox's Mr. Derigiotis said some of these types offacilities are struggling to get Medicaid dollars from stategovernments in this economy, making it harder for them to keeptheir doors open.

CCRCs and assisted-living facilities have been most heavilyimpacted by the economy, according to Mr. Lindahl. He explainedthat people have to sell their homes before they move into suchfacilities, and that has been complicated by the troubles in thereal estate market.

These facilities have been able to weather the economy, says Mr.Lindahl, because they have a backlog of people waiting to get in.But things could get worse for them, he warned, if the recessioncontinues and the waiting lists start to dwindle away.

CHILDCARE RISKS

At the other end of the age spectrum in the social servicesmarket–child daycare facilities–Mr. Derigiotis said he has not seena big impact from the economy for special needs daycare (the typeof business written by Burns & Wilcox in this niche) because itis more specialized and in line with the appetite of the carrierswith which the wholesale broker deals.

Standard daycare facilities, however, are feeling the effects ofthe sluggish economy, according to Christi Hatcher, managingdirector of underwriting for Markel Specialty. She said the economyhas affected areas such as staffing at daycare facilities formaintenance.

Additionally, she said “we see very little organic growth in thesize of accounts.” There are few new businesses, she said, andMarkel is noting declines in enrollment, with some accounts closingtheir doors.

Some camps are developing new activities to attract clients, andthese may be activities the facility has not attempted before,noted Ms Hatcher. This could affect underwriting, she said, addingthat Markel can provide underwriting support when camp directors,associates and counselors have knowledge and training in theseactivities.

Staff turnover is another concern, she said, since “camps thatdevote time and training to new personnel end up with the benefitof having a safe, quality environment for campers.”

Still, despite the effects of the economy, Ms. Hatcher said thesoft market has led to continuing competition for these risks.

“We've seen additional new players in the past few years,” shesaid, “and while we see new competitors, they may not all be ascommitted to these youth organizations as Markel has been and willcontinue to be in the future.”

She added that “we encourage agents and policyholders to focuson value and not only price, including financial strength, abilityto pay claims and experience in understanding sensitive claims thatinvolve organizations that serve children.”

Looking forward, Ms. Hatcher said, “I would hope the marketstabilizes, but so far we continue to see strong competition.”