Seniors are looking for accommodations that will enable themto live as independently as possible while providing any supportingservices they may need.

ON THE life side of the insurance business, few markets are morecoveted than the senior market. But senior citizens these days arebuying more than annuities, securities and trust services. Theyalso are looking for comfortable accommodations that will enablethem to live as independently as possible while providing anysupporting services they may need as they age.

That's where the senior-living industry comes in. In recentyears, a growing number of residential facilities of one sort oranother have opened their doors to older Americans. Forproperty-casualty agents and brokers, there's every reason tobelieve these facilities could constitute an excellent niche marketfor years to come.

To get a better understanding of the senior-living market andits insurance needs, we recently spoke with Greg S. Thompson, CPCU,president of Thomco, which has been involved in this field for morethan a decade. Following is an edited transcript of ourconversation.

AA&B: Your Web site defines thesenior-living market as comprising independent-living facilities,assisted-living facilities, continuing-care retirement communitiesand Alzheimer's facilities. Could you describe these differentservices, starting with independent-living facilities?

Thompson: Independent-living facilities arebasically glorified condominiums or apartments for senior citizens.On average, they have about 75 residents but come in all sizes. Onething that distinguishes them from normal condominiums orapartments is that they usually have call buttons, perhaps next tothe bed and in the bathroom, so residents can summon help quicklyin event of a medical emergency. That's not to say the residentsaren't usually in good physical shape. Independent-livingfacilities are for healthy retired people.

AA&B: Do the facilities themselves provideany necessary medical care?

Thompson: Typically an employee will summonmedical personnel, unless the facility also offers assisted-livingor skilled-nursing care.

AA&B: Are they regulated?

Thompson: For the most part, stand-aloneindependent-living facilities are not licensed or regulated,because they do not provide enough medical care to really requireregulation. They may, however, be part of assisted living orcontinuing-care retirement communities that are regulated.Currently, most independent living facilities are free-standing,but the long-term trend is for them to be part of a community thatprovides a variety of services.

AA&B: Could you describe assisted-livingfacilities?

Thompson: Assisted-living facilities serveresidents who require help with what are called “activities ofdaily living,” or ADLs. These include eating, dressing, bathing,using the bathroom and taking medication. Generally, they don'tactually administer medications. Rather, they bring residents theirmedications at the proper time, and the residents take themthemselves. Typically, assisted-living residents are ambulatory butmay be only marginally so. They may need walkers. Ourdefinition–which has been used by a number of the regulatoryauthorities–is that someone is ambulatory if they can get out of afacility in the event of a fire or other emergency. That includesresidents who can get themselves into wheelchairs in their roomsand wheel themselves out.

I don't know the average age of residents in independent-livingfacilities, but it's around 79 for assisted living. So we'retalking older people, and they require some help. Whatdistinguishes assisted-living facilities from skilled carefacilities or nursing homes–those terms are used interchangeably–isthat as a general rule, assisted-living residents are ambulatoryand don't require daily medical care. People in a nursing home, onthe other hand, generally require daily, or at least regular,medical care.

AA&B: What kind of people do thesefacilities employ?

Thompson: In the case of independent-livingfacilities, mainly housekeepers. Assisted-living facilities usuallyhave certified nursing assistants. One becomes a CNA by taking acourse that lasts about six weeks, so CNAs don't have extensivemedical knowledge. The facility also has a consulting nurse. Thisperson does not deliver medical care as much as monitor that theCNAs are getting residents their medications at the proper times.The consulting nurse's big job is to identify when a resident'scondition changes and to notify the resident's physician, ifnecessary. They also determine when a resident should be asked toleave the facility, because assisted living is not designed to carefor people who are chronically ill.

AA&B: Who regulates assisted-livingfacilities?

Thompson: Almost every state has some kind of alicense for assisted-living facilities. Some have multiple licensesmeant for different kinds of assisted-living facilities. The bodythat regulates and inspects facilities varies from state tostate.

AA&B: What are continuing-care retirementcommunities?

Thompson: CCRCs provide all levels of care,from independent living to skilled nursing, in one campusenvironment. While most independent and assisted-living facilitiesoperate on a for-profit basis, most CCRCs do not. There are severalreasons for this. One is that many are affiliated with churches orother nonprofit organizations. Also, from a liability perspective,they often feel they'll fare better in any litigation as nonprofitsthan as for-profit entities.

In a typical CCRC, people put up anywhere from $50,000 to$500,000 to reserve their spot in the facility. That guaranteesthem care as they progress from independent-living status toassisted living to skilled-nursing care. They also pay monthlyfees, but they are not as high as they otherwise would be,particularly for skilled-nursing care, because the initialinvestment subsidizes the care to a degree. Obviously, CCRCs arefor people in the upper middle class, who might say to themselves,“I'm 75 and want to be sure I'm in the right place, so I will betaken care of when I get older.” To put up the kind of money that'sgoing to make this possible might be a little daunting if you're ina for-profit operation. If a CCRC is a nonprofit organization, onthe other hand, you'll probably sleep a little better at night.These places are very popular, by the way, because they tend to behigh-end and provide high-quality service.

AA&B: What are Alzheimer's facilities?

Thompson: There are maybe 1,000 free-standingAlzheimer's facilities, but the trend is toward having dementiawings in assisted-living facilities or CCRCs, particularly forpeople who are in the early or middle stages of Alzheimer's orother forms of dementia. They may be rapidly losing their memoriesbut are still ambulatory, fairly rational and have not reached thestage where they may become violent. Free-standing facilities tendto be for patients who are pretty far along.

AA&B: Why don't you consider freestandingnursing homes to be part of the senior-living market?

Thompson: Over the past five years, Medicareand Medicaid reimbursement for nursing homes has gone way down. Thefederal government is also slow to pay. So it's difficult to findgood free-standing skilled-care facilities. The amount of servicethese facilities need to provide, versus the money they have comingin, puts them in an extremely difficult position. Some carriers canunderwrite that business; we just don't have the expertise to doso.

AA&B: How many senior-living facilities arethere?

Thompson: Senior living is a new and evolvingindustry, and many list vendors have not segmented the differentparts of this market. You'll see a category like “ConvalescentHomes.” That can mean anything from independent living all the wayup to a nursing home, so the segmentation is poor. There are notindividual SIC codes for the various types of senior-livingfacilities, although I expect there will be in the next fiveyears.

Available statistics refer to beds, or units, rather than toindividual facilities, although it is possible to estimate thenumber of facilities from the number of beds. Currently, there are1,375,000 independent-living units. Assisted living has about628,000 units, continuing-care retirement communities have about630,000 units, and nursing homes have 1,940,000 units. The averagenumber of units per facility is between 50 and 75 units, except forCCRCs, which have 250 to 300 units. Thus, there are roughly 25,000independent-living facilities, about 15,000 assisted-livingfacilities and about 2,100 CCRCs.

AA&B: How is the senior-living marketexpected to grow?

Thompson: The big growth in recent years, from2000 to 2003, has been in CCRCs and independent-living facilities.In 1990, there were only 400 CCRCs. By 1996, that number had grownto 1,200; and today, as previously mentioned, it's about 2,100.

New construction is a good leading indicator of market growth.In 2004, new construction for CCRCs totaled more than $2.4 billion,compared with $412 million for assisted-living facilities and $368million for nursing homes. There's been a slowdown inassisted-living growth in recent years, but I think a lot of thatwas due not so much to a lack of demand but to some overbuildingfor short-term needs. Going forward, I'd say you're looking atdouble-digit growth for independent-living facilities and CCRCs,and high single-digit growth for nursing homes and assisted-livingfacilities.

AA&B: Where can agents and brokers findprospecting lists for senior-living facilities?

Thompson: Probably the best way is throughassociations. The Assisted Living Federation of America has asizable membership. Accreditation authorities like the JointCommission on Accreditation of Healthcare Organizations also canprovide lists for assisted-living facilities. The American SeniorHousing Association (ASHA) represents independent-livingfacilities, assisted-living facilities and CCRCs. The AmericanAssociation for Homes and Services for the Aging represents a lotof nursing homes but also some assisted-living facilities.

AA&B: Are there any centers of influence inthis market that agents and brokers can cultivate?

Thompson: The National Investment Council putson an annual meeting, just for the senior-living industry. A lot ofthe movers and shakers attend that, and they can provide a list ofattendees and members. A big part of this business is financing.The banking community is putting a lot of money into thisbusiness.

AA&B: So bankers are possible centers ofinfluence for agents?

Thompson: Yes.

AA&B: What sort of sales approach work bestin this market?

Thompson: I think the biggest thing is justgetting in front of the decision-maker. These can be big accounts.It's nothing to get to $50,000 in premium for the package on thisbusiness. Even relatively small assisted-living facilities willdevelop those kinds of premiums. For CCRCs, the average premium isabout $250,000. Because you're talking big premiums, you reallyhave to develop your expertise in the industry. It's a new,evolving industry, and the first thing you have to do is educateyourself about it.

AA&B: How do you do that?

Thompson: Attending the association meetings isa great way to do it. That's how I educated myself. I attended alot of association meetings, learned a great deal and made somecontacts.

AA&B: What makes for a good senior-livingaccount?

Thompson: A big thing is that management musthave experience in the senior-living sector. They also mustpractice risk management. There are a couple of key areas they needto focus on. First, particularly if they are involved with assistedliving, they need to do a good job of managing clients'expectations. A lot of people take Mom to an assisted-livingfacility and assume it's going to be like a nursing home. Theyfigure there will be lots of staff, that residents will be closelymonitored and not allowed to leave the facility, etc. Butassisted-living residents are given a lot of freedom. They're notconfined to the facility, as residents of nursing homes almostalways are. Assisted-care facilities do not pretend to be medicalcare facilities. They should be sure that residents and theirfamilies understand that.

A good senior-living facility also will have low staff turnover.If they have high turnover, there could be issues with residentcare and other matters.

Senior-living facilities also should have excellent proceduresfor reporting incidents, which often arise. Falls are among themost common. In truth, many people enter assisted living facilitiesbecause they fell at home. So it's to be expected that they mayfall in assisted-living facilities. How such incidents are reportedand documented can do much to convince a resident's family that thefacility maintained the premises responsibly and responded to theincident properly.

Good facilities also regularly survey their residents to see ifthey are happy with the services provided and ascertain if thereare any problems. In the event of a claim or litigation, a facilityis much better off if it can produce a survey on which a residenthas said, “I love this place.” Defensive purposes aside, a surveyis just a good management tool. A well-run facility cares aboutwhat their customers think and will make adjustments andimprovements, based on the feedback they get.

AA&B: What are the most significantexposures for senior-living facilities?

Thompson: The real keys are the general andprofessional liability exposures. The key information needed forthe submission is a copy of the state inspection report and a copyof the resident agreement form. Many of these agreements specifyboth the services the facility will provide and those they won't.As an underwriter you can learn a lot from what's in that contract.You also can go to a facility's Web site and get a copy of itsbrochure to find out how broad or narrow their services are.

Unless you are talking about a nursing home, the difference theGL and professional liability exposures is a fine line. Most of theclaims you have in assisted-living facilities technically aregeneral liability. One of the few ways you might have aprofessional liability claim is if an employee gave a resident thewrong medication. But usually that happens because someone misreador failed to read a prescription label. Is that a professionalliability or a general liability claim? That's one reason to havethe same insurer provide both coverages, so the claim will be paidquickly regardless.

AA&B: Workers compensation is a majorcoverage for skilled-nursing facilities. Is it for assisted livingfacilities too?

Thompson: It's a bigger exposure for nursinghomes; lifting people in nursing homes is a major cause of workerscomp claims. But even in assisted living facilities, people falland need help. Residents might also need assistance with bathing.So from a workers comp perspective, assisted-living facilities arenot a whole lot better than nursing homes. Both are difficultclasses.

AA&B: How would you characterize theinsurance market for senior-living risks?

Thompson: We're sort of at a plateau. In2002-2004, there were a lot of rate increases and tightening ofunderwriting. At the moment, there seems to be plenty of capacity,and rates are flat.

AA&B: To what degree does this market varyby state? For skilled-nursing facilities, you have resident'srights laws in states like Florida, Texas and Alabama that havecreated major liability exposures for carriers. Does the sameproblem exist in the senior-living market?

Thompson: Quite a few states have resident'srights laws. To a degree, however, medical malpractice reforms havestarted to offset some of the exposures they create, particularlyfor skilled-nursing facilities, which have a larger medicalmalpractice exposure than assisted-living facilities do.

Florida had the worst patient's rights law in the country. Itbasically gave umpteen different rights to residents, and if anursing home violated any of them-even if they were notnegligent-they could be sued. And the rights could be wordedvaguely. For instance, a resident could have a right to “qualitycare.” Well, what does that mean? As a result, nursing homes weregetting sued regardless of whether they were negligent-and theywere losing those cases. Florida passed a law a couple of years agobasically reversing the previous one, so nursing homes no longerhave what amounted to strict liability.

AA&B: Do resident's rights laws applyequally to assisted care facilities?

Thompson: Absolutely, and in some ways theissue of demonstrable negligence is even more important for them.In skilled-nursing facilities, negligence is likelier to be moreclear-cut because the residents are sicker and are receiving morecare. In assisted living, someone could fall in a hallway becausethe residents are ambulatory. But assuming the hallway waswell-maintained, was the facility negligent?

AA&B: What are the most difficult statesfor insuring senior-living facilities?

Thompson: There is the perception that Arkansasand Mississippi are difficult–particularly Mississippi, althoughthe state recently enacted tort reforms that may help. California,because of its judicial environment, is perceived to be a difficultstate. Texas has been the worst of all, although tort reforms havebeen enacted there. It's often unclear at first how much of adifference tort reforms will make. But in Florida, where reformshave been in place awhile, I'd say they've had real impact, basedon our experience.

AA&B: What features should a good packagefor a senior-living facility include?

Thompson: It's what you would expect: property,automobile, GL and professional liability coverages. Some marketsprovide only general liability for assisted-living facilities. Iwould contend that to be properly covered, you have to have someprofessional liability coverage, too. Most markets write propertyand auto on an admitted basis, and GL and professional on anon-admitted basis. Defense usually is included in the liabilitylimits, but some markets offer it outside of limits, which ispreferable, obviously. Most liability coverages are claims-made,but a few markets will write them on an occurrence basis, dependingon location. You see occurrence coverage more often in the Midwest,while you rarely see it in Florida or Texas.

The CCRCs often buy excess liability, but some assisted-livingfacilities don't because of its high price. Excess is expensive intoday's market, whereas the primary rates have leveled off. Therewas a surge of claims in the late 1990s, as lawyers discovered thisfield. While I think the primary market has comes to terms withsenior-living facilities, the excess markets still seemuncomfortable with it, because they just don't know how muchseverity is going to hit their layer.

AA&B: Are there any particular featuresliability coverage should have?

Thompson: You need to have abuse coverage, bothsexual and physical.

AA&B: Are there any significant or unusualexclusions to point out to insureds?

Thompson: For assisted-living facilities, wesometimes exclude coverage for any medical care provided by thestaff itself, except for dispensing medications and giving shots toresidents. We use this exclusion for some smaller assisted livingfacilities, to make sure we're not actually getting a nursing home.On larger accounts, we typically waive the exclusion. Contingentliability coverage is provided, which covers facilities when theycall in home-health-care agencies or similar organizations toprovide medical care.

AA&B: Any reporting requirements or otherimportant features that agents should point out to theirclients?

Thompson: Most policies permit insureds toreport incidents, as long as the insured can demonstrate to thecarrier that the insured may be negligent. An assisted-livingfacility can't just report, for instance, the death of a residentat the facility, and have it considered an incident. Rather, theinsured also must inform the carrier that the facility potentiallyis negligent because of X, Y and Z.

A few claims-made policies written for senior-living facilitiesrequire an insured to receive a letter threatening a lawsuit beforethey will provide coverage. That's a serious drawback, especiallyif an insured has to move coverage for some reason and doesn'treceive notice of possible litigation until after the standard60-day reporting period has elapsed. The former carrier then canargue that the insured didn't report the claim in time and denycoverage for it.

AA&B: In today's market, is making a saleto a senior-living facility a matter of taking away someone else'saccount, or are there a lot of new facilities to write?

Thompson: I think the market has stabilizedsomewhat. There is some trading of accounts, but not as much asthere was in the hard market, when rates were going through theroof and carriers were pulling out. That produced a lot ofturnover. My sense is that the turnover has slowed substantially in2004 and 2005. I suspect that if tort reforms continue to beenacted, we easily could see some rate decreases in the next 12months.

AA&B: What are the main servicing needs inthis niche?

Thompson: Obviously, we're dealing with largeaccounts, and you have to make sure you have them properly covered.All locations and vehicles must be scheduled. You have to be surethe property is properly appraised and valued for coinsurancepurposes.

The brokers who are really making headway in this business tendto have risk management staffs. They have a nurse orrisk-management person on staff. If not, they develop strategicpartnerships with people who can provide risk management assistanceto their clients. Risk management can have an enormous impact onthis class of business. The broker who can act as a risk-managementconsultant adds great value to the sales transaction and has a legup on someone who wants to just sell a cheap policy.

AA&B: Any final thoughts on thesenior-living market?

Thompson: There's a common misconception thatthe baby-boom generation has something to do with the growth of thesenior-living market, but that's not what's driving this industry,at least not yet. Rather, the impetus is a change in our retirementmodel. For the vast majority of people, retirement used to meanthat you went to live with your kids. For many reasons, that's nolonger the case. Senior citizens also are much more affluent todaythan they were 20 or 30 years ago, which enables them to remainmore independent.

Finally, there is no longer the kind of across-the-board stigmaagainst nursing homes and anything like them that there used to be.Thirty years ago, parents told their children, “Whatever you do,please don't send me to the nursing home.” And there are horriblenursing homes out there. But you also have CCRCs, which haveupscale dining rooms and golf courses. Admittedly they're focusedon the upper middle class, but even for people of lesser means, theconcept of retirement living as sitting in a rocking chair doingnothing is changing rapidly. So there is tremendous growth in thesenior-living market coming just from sociological and economicchanges.