Senior-living facilities: A niche with powerful potential for agents

Seniors are looking for accommodations that will enable them to live as independently as possible while providing any supporting services they may need.

ON THE life side of the insurance business, few markets are more coveted than the senior market. But senior citizens these days are buying more than annuities, securities and trust services. They also are looking for comfortable accommodations that will enable them to live as independently as possible while providing any supporting services they may need as they age.

That's where the senior-living industry comes in. In recent years, a growing number of residential facilities of one sort or another have opened their doors to older Americans. For property-casualty agents and brokers, there's every reason to believe these facilities could constitute an excellent niche market for years to come.

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

AA&B: Your Web site defines the senior-living market as comprising independent-living facilities, assisted-living facilities, continuing-care retirement communities and Alzheimer's facilities. Could you describe these different services, starting with independent-living facilities?

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

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

Thompson: Typically an employee will summon medical personnel, unless the facility also offers assisted-living or skilled-nursing care.

AA&B: Are they regulated?

Thompson: For the most part, stand-alone independent-living facilities are not licensed or regulated, because they do not provide enough medical care to really require regulation. They may, however, be part of assisted living or continuing-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 that provides a variety of services.

AA&B: Could you describe assisted-living facilities?

Thompson: Assisted-living facilities serve residents who require help with what are called “activities of daily living,” or ADLs. These include eating, dressing, bathing, using the bathroom and taking medication. Generally, they don't actually administer medications. Rather, they bring residents their medications at the proper time, and the residents take them themselves. Typically, assisted-living residents are ambulatory but may be only marginally so. They may need walkers. Our definition–which has been used by a number of the regulatory authorities–is that someone is ambulatory if they can get out of a facility in the event of a fire or other emergency. That includes residents who can get themselves into wheelchairs in their rooms and wheel themselves out.

I don't know the average age of residents in independent-living facilities, but it's around 79 for assisted living. So we're talking older people, and they require some help. What distinguishes assisted-living facilities from skilled care facilities or nursing homes–those terms are used interchangeably–is that as a general rule, assisted-living residents are ambulatory and don't require daily medical care. People in a nursing home, on the other hand, generally require daily, or at least regular, medical care.

AA&B: What kind of people do these facilities employ?

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

AA&B: Who regulates assisted-living facilities?

Thompson: Almost every state has some kind of a license for assisted-living facilities. Some have multiple licenses meant for different kinds of assisted-living facilities. The body that regulates and inspects facilities varies from state to state.

AA&B: What are continuing-care retirement communities?

Thompson: CCRCs provide all levels of care, from independent living to skilled nursing, in one campus environment. While most independent and assisted-living facilities operate on a for-profit basis, most CCRCs do not. There are several reasons for this. One is that many are affiliated with churches or other nonprofit organizations. Also, from a liability perspective, they often feel they'll fare better in any litigation as nonprofits than 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 guarantees them care as they progress from independent-living status to assisted living to skilled-nursing care. They also pay monthly fees, but they are not as high as they otherwise would be, particularly for skilled-nursing care, because the initial investment subsidizes the care to a degree. Obviously, CCRCs are for 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 be taken care of when I get older.” To put up the kind of money that's going to make this possible might be a little daunting if you're in a for-profit operation. If a CCRC is a nonprofit organization, on the other hand, you'll probably sleep a little better at night. These places are very popular, by the way, because they tend to be high-end and provide high-quality service.

AA&B: What are Alzheimer's facilities?

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

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

Thompson: Over the past five years, Medicare and Medicaid reimbursement for nursing homes has gone way down. The federal government is also slow to pay. So it's difficult to find good free-standing skilled-care facilities. The amount of service these facilities need to provide, versus the money they have coming in, puts them in an extremely difficult position. Some carriers can underwrite that business; we just don't have the expertise to do so.

AA&B: How many senior-living facilities are there?

Thompson: Senior living is a new and evolving industry, and many list vendors have not segmented the different parts of this market. You'll see a category like “Convalescent Homes.” That can mean anything from independent living all the way up to a nursing home, so the segmentation is poor. There are not individual SIC codes for the various types of senior-living facilities, although I expect there will be in the next five years.

Available statistics refer to beds, or units, rather than to individual facilities, although it is possible to estimate the number of facilities from the number of beds. Currently, there are 1,375,000 independent-living units. Assisted living has about 628,000 units, continuing-care retirement communities have about 630,000 units, and nursing homes have 1,940,000 units. The average number of units per facility is between 50 and 75 units, except for CCRCs, which have 250 to 300 units. Thus, there are roughly 25,000 independent-living facilities, about 15,000 assisted-living facilities and about 2,100 CCRCs.

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

Thompson: The big growth in recent years, from 2000 to 2003, has been in CCRCs and independent-living facilities. In 1990, there were only 400 CCRCs. By 1996, that number had grown to 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 $368 million for nursing homes. There's been a slowdown in assisted-living growth in recent years, but I think a lot of that was due not so much to a lack of demand but to some overbuilding for short-term needs. Going forward, I'd say you're looking at double-digit growth for independent-living facilities and CCRCs, and high single-digit growth for nursing homes and assisted-living facilities.

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

Thompson: Probably the best way is through associations. The Assisted Living Federation of America has a sizable membership. Accreditation authorities like the Joint Commission on Accreditation of Healthcare Organizations also can provide lists for assisted-living facilities. The American Senior Housing Association (ASHA) represents independent-living facilities, assisted-living facilities and CCRCs. The American Association for Homes and Services for the Aging represents a lot of nursing homes but also some assisted-living facilities.

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

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

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

Thompson: Yes.

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

Thompson: I think the biggest thing is just getting 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 this business. Even relatively small assisted-living facilities will develop those kinds of premiums. For CCRCs, the average premium is about $250,000. Because you're talking big premiums, you really have to develop your expertise in the industry. It's a new, evolving industry, and the first thing you have to do is educate yourself about it.

AA&B: How do you do that?

Thompson: Attending the association meetings is a great way to do it. That's how I educated myself. I attended a lot of association meetings, learned a great deal and made some contacts.

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

Thompson: A big thing is that management must have experience in the senior-living sector. They also must practice risk management. There are a couple of key areas they need to focus on. First, particularly if they are involved with assisted living, they need to do a good job of managing clients' expectations. A lot of people take Mom to an assisted-living facility and assume it's going to be like a nursing home. They figure there will be lots of staff, that residents will be closely monitored and not allowed to leave the facility, etc. But assisted-living residents are given a lot of freedom. They're not confined to the facility, as residents of nursing homes almost always are. Assisted-care facilities do not pretend to be medical care facilities. They should be sure that residents and their families understand that.

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

Senior-living facilities also should have excellent procedures for reporting incidents, which often arise. Falls are among the most common. In truth, many people enter assisted living facilities because they fell at home. So it's to be expected that they may fall in assisted-living facilities. How such incidents are reported and documented can do much to convince a resident's family that the facility maintained the premises responsibly and responded to the incident properly.

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

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

Thompson: The real keys are the general and professional liability exposures. The key information needed for the submission is a copy of the state inspection report and a copy of the resident agreement form. Many of these agreements specify both 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 its brochure to find out how broad or narrow their services are.

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

AA&B: Workers compensation is a major coverage for skilled-nursing facilities. Is it for assisted living facilities too?

Thompson: It's a bigger exposure for nursing homes; lifting people in nursing homes is a major cause of workers comp claims. But even in assisted living facilities, people fall and need help. Residents might also need assistance with bathing. So from a workers comp perspective, assisted-living facilities are not a whole lot better than nursing homes. Both are difficult classes.

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

Thompson: We're sort of at a plateau. In 2002-2004, there were a lot of rate increases and tightening of underwriting. At the moment, there seems to be plenty of capacity, and rates are flat.

AA&B: To what degree does this market vary by state? For skilled-nursing facilities, you have resident's rights laws in states like Florida, Texas and Alabama that have created major liability exposures for carriers. Does the same problem exist in the senior-living market?

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

Florida had the worst patient's rights law in the country. It basically gave umpteen different rights to residents, and if a nursing home violated any of them-even if they were not negligent-they could be sued. And the rights could be worded vaguely. For instance, a resident could have a right to “quality care.” Well, what does that mean? As a result, nursing homes were getting sued regardless of whether they were negligent-and they were losing those cases. Florida passed a law a couple of years ago basically reversing the previous one, so nursing homes no longer have what amounted to strict liability.

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

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

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

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

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

Thompson: It's what you would expect: property, automobile, GL and professional liability coverages. Some markets provide only general liability for assisted-living facilities. I would contend that to be properly covered, you have to have some professional liability coverage, too. Most markets write property and auto on an admitted basis, and GL and professional on a non-admitted basis. Defense usually is included in the liability limits, but some markets offer it outside of limits, which is preferable, obviously. Most liability coverages are claims-made, but a few markets will write them on an occurrence basis, depending on 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-living facilities don't because of its high price. Excess is expensive in today's market, whereas the primary rates have leveled off. There was a surge of claims in the late 1990s, as lawyers discovered this field. While I think the primary market has comes to terms with senior-living facilities, the excess markets still seem uncomfortable with it, because they just don't know how much severity is going to hit their layer.

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

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

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

Thompson: For assisted-living facilities, we sometimes exclude coverage for any medical care provided by the staff itself, except for dispensing medications and giving shots to residents. We use this exclusion for some smaller assisted living facilities, to make sure we're not actually getting a nursing home. On larger accounts, we typically waive the exclusion. Contingent liability coverage is provided, which covers facilities when they call in home-health-care agencies or similar organizations to provide medical care.

AA&B: Any reporting requirements or other important features that agents should point out to their clients?

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

A few claims-made policies written for senior-living facilities require an insured to receive a letter threatening a lawsuit before they will provide coverage. That's a serious drawback, especially if an insured has to move coverage for some reason and doesn't receive notice of possible litigation until after the standard 60-day reporting period has elapsed. The former carrier then can argue that the insured didn't report the claim in time and deny coverage for it.

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

Thompson: I think the market has stabilized somewhat. There is some trading of accounts, but not as much as there was in the hard market, when rates were going through the roof and carriers were pulling out. That produced a lot of turnover. My sense is that the turnover has slowed substantially in 2004 and 2005. I suspect that if tort reforms continue to be enacted, we easily could see some rate decreases in the next 12 months.

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

Thompson: Obviously, we're dealing with large accounts, and you have to make sure you have them properly covered. All locations and vehicles must be scheduled. You have to be sure the property is properly appraised and valued for coinsurance purposes.

The brokers who are really making headway in this business tend to have risk management staffs. They have a nurse or risk-management person on staff. If not, they develop strategic partnerships with people who can provide risk management assistance to their clients. Risk management can have an enormous impact on this class of business. The broker who can act as a risk-management consultant adds great value to the sales transaction and has a leg up on someone who wants to just sell a cheap policy.

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

Thompson: There's a common misconception that the baby-boom generation has something to do with the growth of the senior-living market, but that's not what's driving this industry, at least not yet. Rather, the impetus is a change in our retirement model. For the vast majority of people, retirement used to mean that you went to live with your kids. For many reasons, that's no longer the case. Senior citizens also are much more affluent today than they were 20 or 30 years ago, which enables them to remain more independent.

Finally, there is no longer the kind of across-the-board stigma against 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 horrible nursing homes out there. But you also have CCRCs, which have upscale dining rooms and golf courses. Admittedly they're focused on the upper middle class, but even for people of lesser means, the concept of retirement living as sitting in a rocking chair doing nothing is changing rapidly. So there is tremendous growth in the senior-living market coming just from sociological and economic changes.