A new report from Marsh and Oliver Wyman, both businesses of Marsh McLennan, takes stock of the liability landscape for senior living and long-term care providers, showing a field that is seeing more claims – and more expensive claims – than ever before, aligning it with industries across the country.
The report, “2024 General and Professional Liability Benchmark Report,” underlines that the costs of third-party liability claims have grown steadily throughout the U.S. in recent years across many industries. Senior living and long-term care have very much been a part of that trend.
“In the years 2017 through 2019, there were more than twice the number of claims in excess of a million dollars than we observed in 2014 through 2016,” said Patrick O’Rourke, senior principal at Oliver Wyman and an author of the report. “So just in that quick three-to-four-year window, we see significantly more claims of a million dollars plus than we had observed previously.”
Approximately 50 providers submitted data for the report, and the analysis ultimately focused on nearly 10,300 closed claims with a total of $1.8 billion in paid indemnity and expense over the past decade through Dec. 31, 2023. The exposure from the analysis is associated with approximately 243,000 senior living and long-term care units. The report focuses on closed claim data, meaning that it is not capturing the many open claims that potentially will settle for a high-dollar value in the future.
In the senior living space, the report forecasts a frequency of 0.31 claims per 100 occupied units in the 2024 report year – an increase of 0.6%. In addition, it forecasts a claim severity of $246,800, which is an increase of 3.8%. Meanwhile, the forecasted loss rate – the cost needed to pay indemnity or expense per occupied unit – is $760, an increase of 4.4%.
In comparison, the long-term care forecast includes a claim frequency of 1.10 claims per 100 occupied units (0.3% increase), a claim severity of $270,000 (3.7% increase) and a loss rate of $2,970 (4.0% increase).
O’Rourke said social inflation and potential abuse of the legal system are two main drivers of those rising costs in recent years. Social inflation refers to an increase in insurance claim costs due to a combination of social and behavioral trends that include issues ranging from broader definitions of liability to larger jury awards and increased funding for litigation.
In addition, O’Rourke mentions that that longer settlement times lead to both higher indemnity costs and legal expenses. In fact, the study shows that the longer that a claim remains open then the higher the claim cost is when it ultimately closes.
The study emphasizes the profound role of aberrant verdicts – also known as nuclear verdicts – which arise when a jury awards a sum that grossly exceeds what was anticipated.
“We’re starting to see an increase of nuclear verdicts in the senior living space,” said Tara Clayton, a managing director in Marsh’s Senior Living & LTC Industry Practice and a study author.
In many ways, senior living faces similar challenges to a lot of fields as it relates to claims, but Clayton said it does have some unique characteristics to overcome.
“These senior living lawsuits involve a very vulnerable population – elderly residents – and how that story is told to a jury can impact the final result,” Clayton said. “It’s important for defense attorneys, risk managers within our operator companies and others to understand how we can better defend ourselves and tell our story.”
The truth is large, successful claims often lead to more claims.
“With these larger jury verdicts, the plaintiffs’ lawyers do a really great job at advertising their results, and that kind of marketing message gets out to the greater public and can impact other jury members that may come into the pool for future cases,” Clayton said. “It impacts the consumers who are reading that information in the papers or seeing it on television. And we’ve even seen impact on the legislative side from these claims.”
Falls have been the leading cause of claims for years, and “that’s no surprise,” Clayton said. O’Rourke said it is important to understand that the large claims are not limited to apparently major incidents.
“A lot of the claims that we’re seeing arise that have high dollar values don’t seem like they’re catastrophic-type claims,” O’Rourke said. “They’re falls, skin and wound injuries, or fractures. A lot of these claims are settling for $300,000, $400,000, $500,000 and the cost associated with this is high. Yes, the insurance carriers bear the risk originally, but ultimately those costs get passed on to the operators, and the operators pass those costs back on to the residents.”
The study highlights claims activity in individual states, but the authors said they were hesitant to draw large conclusions based on that activity because the relatively small number of claims per state could mean skewed data based on one or two major catastrophic claims. Broadly, though, California has shown a higher severity of claims than other states, while Florida has a significantly higher frequency of claims per occupied unit than others.
Clayton said the senior living industry continues to work to learn from the challenges that it has faced in previous claims and identify areas to continue to improve to better prevent claims and defend itself when they arise. For instance, she pointed to improving clarity around assisted living.
“There’s been a lot of effort around getting the story out about what assisted living is and what it is not,” Clayton said. “Placing a loved one in an assisted living community does not mean accidents won’t happen. Operators do everything they can to prevent them but residents, unfortunately, still fall.”
Clayton said setting realistic expectations is critical.
“When we don’t meet that expectation, that’s typically when we see a claim,” she said. “And so if we can do a better job upfront of managing those expectations, there’s no false thoughts of, ‘Well, mom’s never going to fall because she’s moved into this community.’
A future Senior Living Executive article will focus on best practices for preventing claims from Marsh McLennan experts.
