The graying of America could be a great opportunity for young entrepreneurs, including young insurance producers.
As the nation’s population continues to gray, the people who work in the many businesses and organizations that serve seniors are themselves getting older and retiring.
This is true among the insurance producers who sell property, liability and other insurance packages to the owners and managers of senior and long-term care (LTC) facilities. Many of the insurance producers who have carved out a specialty in the LTC market are getting to the age where they will soon be utilizing the services more than counseling the providers.
At the same time, the LTC industry is big and getting bigger.
According to those with experience in this market, there is a need for young producers who want to specialize in the insurance market for the LTC industry.
‘Gray Wave’
“It’s a big universe and there’s a lot of potential demand out there for new, young, aggressive producers to go after,” according to Shawn Yingling, president of Glatfelter Healthcare Practice, which operates a national senior living program for skilled nursing care for- and non-profit facilities, assisted living and personal care homes, continuing care retirement communities and retirement apartments.
He says the senior living insurance market is experiencing its own “gray wave” as insurance professionals serving this market are aging out themselves. “Over the next five to eight years I know of many producers who will be aging out; so there’s a lot of need for new producers to come along and write this segment,” he said.
However, Yingling and others stress, the field is not for every producer – it is best served by those willing to specialize.
Specialization Needed
Specialization matters a great deal in the senior living industry.
According Matt Mitchell, president of healthcare for The Hanover Insurance Group, specialization is needed due to the increase in demand for long-term care services, insurance product complexities and the severe nature of claims in the space. In addition, the regulatory environment for senior living operators is changing rapidly.
Edward (Ed) McConnell, vice president at Assurance, an independent insurance brokerage based in Schaumburg, Ill., says the senior living insurance market has become more niche than ever before. While senior living insurance has always been a niche market when it comes to property/casualty coverages, the employee benefits side has grown to become more niched as well.
“The products can be a little bit complicated because you are often dealing with surplus lines and claims made forms,” Mitchell said. “The types of services, and really knowing what the client needs, and working with carriers to insure those needs becomes complicated, too.”
Unlike traditional business risks, senior living facilities must work with carriers and brokers that understand “clinical risk management,” Mitchell said.
“If you think of the big types of claims that these facilities get … decubitus ulcers, otherwise known as bed sores, falls, or elopements, which are big issues that drive severity, you have to have a lot of real understanding of what’s going on in the facility,” Mitchell said. “You have to make sure you are matching the facility with the appropriate product selections. But equally, if not more important, you have to match them with a carrier that can handle the claims and risk management services around those unique exposures.”
While success in this market depends on expertise, agents and brokers with little experience can find specialist partners to target this growing segment.
“Certainly we want to partner with agents who have history in the class of business and whose principals are involved in actively securing the new business,” said Glatfelter’s Yingling. “But we are also happy to talk to agents that are maybe just starting in the class who have a lot of energy and passion to go out and chase it. With these new people we are able to back them up with our resources to make them look like an expert early on.”
Senior living P/C accounts can be sizable, which is attractive to producers looking for a specialty niche. “They can easily be six figures, even just for the small facilities,” he said.
Hospitality Care
One of the biggest trends shaping the long-term care industry today is how it caters to its residential clientele, said Marty Butler, senior vice president at Assurance, who has specialized in the area of long-term and senior care for more than 25 years working in many different capacities including claim handling, underwriting, accounting, marketing, client service and sales.
Over the past few years, many of the more “progressive facilities” have moved toward a hospitality business model as opposed to a more traditional nursing home setting, Butler said. This differs tremendously from the past.
“Baby boomers want quality and services,” according to Butler. Baby boomers want the benefits of living in a green building facility with quality services and green living options, such as gardens, solar power and the like, she said.
“It works much like a hotel in that they offer services that you might not ordinarily find in a traditional long-term care facility,” Butler said.
Many of today’s more progressive facilities look similar to a campus and offer the entire continuum of care for aging individuals starting with the lowest level of care all the way to the highest level, she says.
“Continuing care retirement communities are retirement communities with a higher a spectrum of care,” she said. “They’ll have apartments that are for independent living, where the residents need little or no assistance. Then they’ll have assisted living care, where the residents may need some sort of help with daily activities. Then there is intermediate or skilled nursing care, which is a highest level of care.”
It’s a self-contained community, she says. “What’s nice about this model is that as people age, there are options available to them; whereas if you are just in a standalone assisted living facility it’s hard to get residents to move to that next step to go into a full assisted living.”
Industry in Transition
While the senior living industry is experiencing tremendous demand for services, it is also facing significant challenges from laws and regulations that are impacting the bottom line for some LTC operators, the experts say.
Higher level LTC facilities – otherwise known as skilled care or skilled nursing facilities – are primarily financed through Medicare.
Many states and the federal government are under financial pressure due to the “gray wave,” says Lee Sommars, senior vice president at Lockton Insurance Brokers, who has specialized in the LTC segment for more than 25 years. As a result, the LTC operators are dealing with changes in Medicare reimbursement, which are adding to their financial pressures.
While LTC operators are adapting to the new Medicare guidelines, the reimbursement is slower and will remain a challenge for some operators, says Glatfelter’s Yingling. “Assisted living facilities are oftentimes private-pay so it’s less of an issue for those operators, but for skilled care facilities slower reimbursement leads to margin erosion,” he said.
Yingling predicts that the need for staff as the demand for services continues to grow could have a negative impact on senior living providers.
Each level of facility – independent living, assisted living, skilled care – requires a special skill set. However, it is a challenge finding qualified and properly trained staff to fill those positions, leaving some to rely upon independent contractors who may lack the necessary skills. As a result, there are important liability implications, Yingling says.
“Nationally, there’s a movement afoot to increase the federal minimum wage and states and municipalities are already acting on that,” he said. “Any kind of wage pressure erodes the margins” and the majority of frontline staff in LTC facilities would be affected by a change in minimum wage standards, he added.
Another staffing challenge is a national shortage of nursing professionals.
“There’s always concerns about staffing, but it’s not a question of finding enough people; it’s just the operators want the right people,” Sommars said. “From my perspective I’m not hearing that we are having significant gaps in staffing.”
He admits that a LTC provider can’t compete with wages offered by others, such as acute care hospitals. But that’s not why LTC employees stay in the field. “Eighty percent of the employees in the LTC profession are there for a reason. They like the LTC profession. They like getting to know their residents. They like the positive outcomes that they see in delivering long-term care to their residents.”
Facility Shortage
The biggest challenge the LTC industry faces is the shortage of facilities, Yingling said. “The hardest part is finding facilities out there to accept the people given the large demand. They can’t be built quick enough.”
“We are seeing a lot of consolidation as a result of the governmental changes to reimbursement rates for skilled nursing; it’s causing a lot of these folks to reduce economies of scale by consolidation,” Yingling said. “So while you are seeing growth, you are also seeing consolidation to overcome margin erosion.”
Assurance’s Butler agrees that consolidation within the LTC market is probably the number one trend right now.
“There’s just an extraordinary amount of sales and acquisitions right now,” she said. Low interest rates, lots of available capital in the healthcare area and the unprecedented increased demand in occupancy rates is driving that trend.
“Right now is the time for providers to grow and diversify, or sell. A lot of times these deals come with little notice so as brokers we have to be nimble and able to react quickly. From an insurance standpoint it’s important to be mindful of the professional liability coverage that the seller has. … Any known incident needs to be reported and an extended reporting period needs to be given to the insured to make sure there is a time frame to report claims after the sale.”
Despite the changing conditions in LTC, Butler says it’s a great market for insurance specialists. There’s tremendous growth across the board in the senior living sector, she says. “The industry as a whole, including home health and hospice, is growing by leaps and bounds.”
“And with a lot of capacity and incentive to write more business,” Sommers adds.
Wells is Editor-in-Chief of Insurance Journal Magazine, where this article originally appeared in the Nov. 17, 2014 issue.
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