Why is there confusion in the current property market for senior living?
The answer: These property insurers have recently lost a large part of their reinsurance capacity. An estimated $40 billion in capital has left the property reinsurance market by year-end 2022, and every insurer has had to take much larger retentions and pay significantly higher rates. Further expected declines in 2023 are estimated up to $60 billion total. The result is a supply and demand phenomenon that this market has not seen since the 1980s, with a significant decrease in surplus of capital to support property accounts — accompanied by an increase in demand for the capital to account for inflation and loss trends.
This confusion is driving disruption in pricing, capacity and coverage.
- With respect to pricing, as reinsurers are pushing price and retention increases in conjunction with providing lower limits, primary insurers must follow suit to pass on these phenomena in varying degrees based on underlying exposure, with challenged and/or CAT-exposed occupancies realizing high double-digit or more rate increases.
- Capacity is affected as insurers “optimize” their portfolios to reduce aggregate exposure to CAT perils, which further reduces available capacity to cover these exposures; thus, remaining capacity pricing becomes substantially higher.
- Coverages are also affected with enhanced focus on convective storm exposure as markets push for sublimits and percentage deductibles similar to traditional CAT perils, such as named storm and earthquake, as large loss trends have been moving from traditional natural catastrophe areas (CA, LA and FL) to new areas in the Midwest and Northeast.
In addition, inflationary pressures have produced notable undervaluation on statement of values with insurers implementing occurrence limit of liability/margin clauses which only provide coverage to values declared, or percentage thereof, rather than to full replacement cost. As a result, property valuations continue to be heavily scrutinized, especially if not adjusted upward to reflect current construction costs, which has a compounding effect on the underlying rate increases.
Property renewal challenges abound, so we offer best practices to “manage the market:”
- Providing better information — Getting insurable values (with detailed construction, occupancy, protection and exposure) by location that are accurate and timely is crucial. Sprinkler protection details at every location should also denote whether attics and concealed spaces are sprinklered in addition to common areas. Roof age data is also becoming increasingly important.
- Responding to recommendation requests — If the insurer visits your community and provides a loss prevention/engineering report, it is important to respond to the recommendations in a timely manner.
- Complying with corporate standard procedures — The preparation of organized maintenance plans (that are tracked and recorded) by your community is viewed positively by insurers. Also, following consistent human element protocols across the organization boosts insurer confidence in such areas as emergency response/evacuation plans, fire emergency response plans and sprinkler maintenance plans.
- Exploring alternative retention strategies (plus aggregate model) — Purchasing lower deductibles comes with a significantly higher cost in this market environment, so for organizations with the financial wherewithal and potentially controllable exposures, higher deductibles and/or corridor retentions above deductibles could prove to be more cost effective in the long run.
Should you wish to discuss these or other property marketplace strategies, WTW is ready to assist.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).