Senior Housing Investors
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Senior Housing Investors
Senior Housing Insurance: A Story of Constant Change
Ready to unravel the complex web of insurance in the senior housing sector? This episode promises to provide a solid understanding of the ever-changing landscape of property insurance. Our expert guide through this maze is none other than Richard Dahm Jr., the Senior VP at USI Insurance Services. With over two decades of experience up his sleeve, Richard's insight is a goldmine for anyone involved in senior housing. He explains how the property insurance market is continually shaped by global events and our changing climate, leading to an increased rate of property claims since 2017 and consequently, skyrocketing insurance costs.
Navigating this space is not for the faint-hearted. Be prepared to face surprises when acquiring a property and seeking insurance quotes. Richard emphasizes the importance of due diligence and how different legal climates across various states can swing insurance costs wildly. But don't worry, there's a way to mitigate these risks - enter other insurance products. Moreover, picking an industry-specialized broker and doing your homework can help you secure the best loss ratio. So, gear up for an informative journey that's bound to save you time, money, and a whole lot of stress. Tune in now for an episode you can't afford to miss!
I would just say that you know, understanding insurance is an ever-evolving place. It's like the stock market, and you've got to always pay attention to it, you've got to be involved with it and you've got to know what's affecting it In any given situation. Things change and things shift, and it's one area that I think always has to have somebody that you work with, keep you up to date and involved, and if you don't, I think it's something that can catch somebody off guard for the long haul. If you don't think you're working with somebody now that is staying abreast of the market space and knowing it well, I would encourage you to look to a broker that does specialize in the industry.
Speaker 2:Welcome to the Senior Housing Investors Podcast. If you are an owner operator, investor, developer or buyer of senior housing, you've come to the right place. The best way to stay connected with us is to sign up for our weekly newsletter at havenseniorinvestmentscom. This podcast doesn't exist without you and our community. Thank you for listening and reach out to us anytime.
Speaker 3:Welcome back everyone. Today, John Haber is having a conversation with Richard Dom from USI Insurance Services. Whether you're looking to acquire a property or you already own some, this is a must listen podcast. Listen in as Richard explains the insurance, Tina Todd and what you should be considering as a senior housing investor. John.
Speaker 2:Thanks, kelsey. Today is very exciting. Some people think it's exciting, but I think it's pretty exciting as I'm going to be speaking with Richard Dom regarding the insurance marketplace as it relates to the senior housing and senior living marketplaces. Richard has over 20 years of experience in property and casualty insurance. In that time, he's built a national client base. Richard enjoys working with senior executives, owners and the CEO, CFOs, risk managers who understand the importance of managing risk as their companies grow. These executives are long-term relationship oriented and have a strong commitment to their customers and employees for dedicated service and support. Richard, welcome to the show.
Speaker 1:Thank you so much. Thank you for having me?
Speaker 2:What do you do outside of the day-to-day insurance job that you hold as senior VP at?
Speaker 1:USI. Outside of it, richard and I, local based in the Tampa Bay market, we have twin three-and-a-half-year-olds, so two boys that keep us pretty much on our toes outside of the insurance world, Just enjoying spending time with them and the family, enjoying Florida, good weather when there's no hurricanes.
Speaker 2:That's right, florida's going.
Speaker 1:we just went through one of those, right yeah and I've already got people emailing me saying there's another one or two out there for another week or two. So it's not for faint of heart, but it's the world we live in and we're kind of used to it. I like it a little bit better being able to see them coming versus a California earthquake. You don't really know what you're getting. But I think Florida's done, overall, a good job of preparing and I think people who've lived here long enough know and understand the risk. And it's not always perfect, but I think people overall try to make every effort to be prepared for what's coming.
Speaker 2:Well, it's interesting is that in this senior housing space, so many of our seniors move to those warmer climates that tend to have the higher risk factors associated with wild fires and hurricanes and storm related issues. But they are great places to live in and, as you and I spoke before, you really enjoy living down there in Florida. So tell us, as we go into, you and I speaking, what is the number one issue currently as it relates to insurance in the senior housing space.
Speaker 1:Right now, property insurance is the number one factor driving the bottom line for, I would say, all of our senior housing folks. In years past it was general liability, but as the teeter totter swings and the market shifts, property as a whole we've seen in the last five years become really the number one driver and it's really been something that stems from developing over time. And we see, since 2017 coming forward, that we've had more property claims countrywide as a whole than we've ever seen in our history. And you know some folks will say well, you know, gee, property never bothered us, like we've never had a claim. You know, why is our insurance, you know, going up 30% or why is it doubling? What can we do to change that? And some of the answers are you know, there are some things that can be, you know, helpful and then some things that are just just unfortunately, they're caught in the way of, like the climate change, of everything, but it's something that just everybody is being affected on because of the global market. And you know, since 2017, we've averaged $20 billion a year in claims and so you get that in a five year run, but then you throw in a hurricane in who then puts out a you know 70 to $100 billion. You know damage and now you've built up one year that looks like a five year historical all of a sudden altogether and with that it really dug into the coffers or reinsurers. And you know everybody says, well, go to London or go to Bermuda or go offshore to see if we can find other places. But the reality is is those markets are the ones that are really supporting you know, globally, the insurance carriers that are placing it. So the insurance companies will sell you insurance, but they buy insurance for reinsurance purposes to shore up their bottom line. So there is a catastrophic event, then you know they have a backstop as well and some take on higher risk than others.
Speaker 1:But the bottom line is, is that when Ian hit, we were already at a point that was bad and when adding Ian to the equation really drove. You know the knife in the coffin. You know from a cost basis and we were already seeing it. We were already expecting it, but not to the degree that now that we have seen it and I believe it's going to take another 12 to 18 months before we really start to see that reversing again pending obviously, hopefully not going to would we have no more hurricanes and events that I say globally, which is, you know, you look at freezes like the freezes in Texas were, you know, an outlier for the marketplace, so you look at those. And then you look at the wildfires in Texas and you look at some of the tornado alley. You know where those events have laid and you know we only see local news so we don't ever really pay attention so much to what's necessarily happening countrywide. But from an insurance perspective, we're always looking geographically countrywide to see what's forming, what's hitting and how much these things are impacting other areas.
Speaker 1:So a lot of these companies you think about it if there was 100 insurance companies writing property insurance and all of a sudden, after Ian, that list shrank to, let's just say, 60 of them now. So all those that were writing they, those people still needed insurance. So now they're going to the 60 that are left and I'm summarizing this to make it, you know, simplified. But now those 60 are picking up the rest of the market for the other 40 that no longer wrote in the market space. So now they have to make sure that their ability to take on that risk is sustainable. And how much money do they have to have to take on to be able to make sure that, if there are claims, that they can afford to pay out those claims in their entirety as well. And so that's part of that basis of why we're seeing you know more, more and the increased costs, because these carriers that had maybe 25% of the market now are carrying anywhere from 35 to 40% of what they had, you know from before.
Speaker 1:And you know we think, well, I never had a claim. I mean, I never had a claim on my home, and yet my personal insurance keeps going through the roof. And I think, well, you know, that stinks, you know. So clients look at it and they say, well, can we take a higher deductible? Can they look at mitigating things that they can use? Maybe they've got hurricane we call it, say hurricane shutters, but maybe they have things that can be impactful to the business, so hurricane impact windows. They have generators, you know, they have evacuation plans. What do they do to shore up, making sure that their property is in a better position for an underwriter to look at it. So we try to take all those things into effect and make sure that any story that we can tell the underwriters, you know why they're a better risk, then ultimately that's meaningful. But some of it we just, you know we cannot run it all and that's what's being seen right now and that's the heartburn that we're all you know, we're all getting.
Speaker 2:What are some of those states that have been impacted the most? I mean Florida's one, I'm sure, but can you name the top five, six states that are having larger increases to their rates?
Speaker 1:Sure, so we call anywhere within a 50-mile radius to the coast a tier one. We do it by zones, but I would say anything that's a 50-mile radius to the coast from Florida through Louisiana all the way over to Texas, is definitely an impacted geography. And then I would say, carrying that forward, you know hurricanes are big and these events are huge. And so people say, well, you know, we're 20 miles to the coast, but the last time I checked, you know, you look at these hurricanes and they're anywhere from 200 to 400 miles wide. I mean, they're big.
Speaker 1:So we see these events carrying in and when you get out of the tier one, tier two territories, a lot of the insurance companies, they're still saying, well, gee, they affect us, so we don't want to write in these areas anymore. A lot of these carriers, like the tier one carriers, don't want to write in the secondary carriers anymore. So you get like South Carolina, you get North Carolina, you get parts of Georgia, you know you get even up into we've seen Nashville, we've seen, you know, tennessee areas where they've been affected. I think what folks don't really realize is that all these insurance companies are kind of the same across the country. They all write in different areas but they all will generate, you know, revenue dollars by the geography and what they're willing to write in each of those areas. So then if they pull out of one area it has an offset to another where maybe one carrier was writing 12 cents per $100 of value in you know Idaho you know now, because of their global risk factor is maybe not writing it under 25 cents.
Speaker 1:So you say, well, I'm never going to have a claim in Idaho but the going rate across the board might, as a conglomerate, have more affected that than less. So you might have to take a little more here to get a little bit more over there. And then we have to work on behind the scenes as a broker to blend the rates so we can make still the state rate maybe a little bit more competitive and those that are in the areas that are a little worse have a little bit more of the responsibility of the claims activity. But I would definitely say you know coastline, it's definitely seen that You're seeing definitely some California. You've always had like California quake in that territory. But Florida, georgia, texas, louisiana, south Carolina and even going up a little bit more on the coast. You know it's definitely having an impact to that. But insurance across the board, countrywide, is having, you know, an effect.
Speaker 2:Something that has been said to me is that owners and operators can do alternative risk financing structures. Are you familiar with those?
Speaker 1:Well, I mean they obviously can look to self-insure. More of you know what they're taking on and it also depends, I mean, some groups have much larger pools so you get some of the REITs that have, you know, hundreds of millions in value in there and that can help. Some of we've seen groups you know pool resources and property programs together and kind of consolidate. You know what they have to help offset and some of the rate increases. But again, taking higher deductibles, you know in that capacity, taking larger fire deductibles, it just kind of depends on the geography of what we're talking about in their exposure base. As far as any type of alternative plans, it really just goes back to the size and scope of those that are placing the insurance. If we're talking a one-off building in Florida, that's much more difficult, you know, subject to have than talking about somebody that is maybe based out of Chicago that has 200 properties. So how that's leveraged can be different.
Speaker 2:Okay, and so, as you know, haven Senior Investments is a consulting advisory firm, along with our sister company that's in the brokerage business, and so we are dealing with buyers and sellers all day long, and one of the areas that's most important in that process is the due diligence on the insurance side, both for those who currently own and are having to come up to their policy timeline, and the insurance carriers are repricing to those who are buying facilities and need to do due diligence. So can you talk more to our audience about that due diligence that both the buyer and seller need to go through?
Speaker 1:Sure. So whenever a client comes to us, you know, depending on their pace, of what they're buying we have some that are buying things and selling all the time. So we try to ask them in the sense of when their expectation is on a deal. So do they have 70% chance that it's going to happen? Are there 100% chance? Usually there's a PSA agreement that they'll sign and they'll have a due diligence period. And then when their money will go hard. We so often have clients that come to us and they're like nope, our money's already gone hard, we just need to take care of and deal with insurance. Our recommendation is this before your money goes hard, give yourself at least a 30 to 45 day window to explore insurance. If you can do it longer, further out there, that's great. But the reality is, is that, starting off, first and foremost, knowing the history of the properties that you're looking at, which is really claims activity, whether it's liability or it's property damage, what's been on those properties that would be, you know, affecting, you know, the new deal?
Speaker 2:Okay, so the next question I would have, and I'm very curious about, is where are the biggest surprises that buyers encounter when they're acquiring a property and they go for quotes on insurance?
Speaker 1:So I would say the biggest surprise is doing the due diligence and the homework is getting the loss runs, getting the information and depending on who they're buying from a lot of these senior living groups out there, they're very large groups and they have multiples and multiples of properties and they're unloading some of their properties and a smaller operator will buy and they're looking at the historical expenses that the larger operator would have and trying to compare that in their due diligence to their bottom line, what their expense is going to be. And too often we see that they just get caught off guard where their insurance might be spending $100,000, and the best deal that they can find at their broker is getting them is $250,000. And all of a sudden that might change the parameters of the deal, and so the valuation of what they were thinking on the building, adding another $150,000 of expense, obviously makes a big impact, and so what we encourage everybody to do is not only get a copy of the license for us so we can see how many beds it is, we know where the geography of it is, because also in the litigiousness of it, there is a legal climate that does swing more favorable from one side or the other. Sometimes the deal is a great deal, no matter where it is, but you have to take into account what the offsets will be. So if you're looking at buying a senior living facility in Miami, you're looking at potentially $2,000 a bed. If you're looking at one in Orlando or maybe Tallahassee, you might be looking at $800 or $900 a bed to $700 a bed If you're looking at the Tallahassee area, if you're talking about South Carolina or you're talking about LAJ Georgia, all those change the dynamics of that, and so having experience with knowing what those parameters look like and then getting the loss runs, so knowing historically what kind of appetite for claims that the seller had, and if they have no claims, that's fantastic. It means that you can move forward.
Speaker 1:An underwriter feels a little better. They have a clear conscience to offer you the most aggressive terms. But let's just say you have a client, that opportunity that you're buying building at, and you see that they have $400,000 to $600,000 with the claims on there, and that's not in one year. So let's just say it's not two claims and it's a snapshot in time of just one or two claims in a given year, but it's over five years that they have these and every year has something. Well, when you buy these facilities, you're also buying the residents that are there and you're buying the historical effect.
Speaker 1:And so, even though a owner inherit the prior residences and they say, well, the owner of the prior building goes away, the new owner isn't responsible for that the insurance company still feel that there's a stigma about the property and where it came from, and it's going to take time to turn that over and you're still going to have residents in there that ultimately may or may not have something in the pipeline that they feel could potentially be a claim that will come on to them that won't escape the prior history. So they look at that and they take that into account, and then they also look at, kind of the global, what that cost would have been if they were the insurance company. So if they're averaging a couple of hundred thousand dollars a year, insurance companies want to write to be profitable. So whether it's a 50% profitability or 70% profitability, whatever the number, it is that they're there, they're going to factor that in to get you a pricing, and our job then is to see that so that way we can walk it backwards and say, well, no, this isn't going to happen on our dime. We've come in, we've done full assessments on all the residences. We've suggested anybody that was not in the right acuity level would be moved out prior to the changeover. You know we would make sure to get a game plan for pro. You know being proactive and how to handle that.
Speaker 1:But we see time and time again where a group that that we would recognize is a very large group in the industry would have anywhere from two hundred to five hundred units country wide that has a very large deductible, say two hundred fifty thousand, or even self insurers, and then their pricing their insurance on multiple of their expense, but not necessarily what the industry is rating it on, because it's not the same comparison. So that then tends to really does a catch a lot of our clients off guard. So the first thing my clients tend to do is Pick up the phone or send us a note and say, hey, we're looking at this property. Can you do a review of it? Can you tell us anything about it? We're getting the loss runs. We've been told we've got a little bit here. When we do get the loss runs, you know seeing how that compares and then taking that to some underwriters prematurely to get a benchmark of comparison. Or if we have other properties geographically nearby, we can do a benchmark as well to what we're seeing in a comparison of cost.
Speaker 2:Explains a lot, and one of the areas we want to make sure of is that the buyer does mitigate that surprise. Let's just put it that way. And so what other insurance products do you bring to the senior housing space, or what other insurance products do you believe that owners and operators should hold to mitigate the risks associated with business?
Speaker 1:Obviously definitely general liability, professional liability, me, if your property insurance, you know your risk for appetite, whether you purchase an umbrella or not, is that the discretion of the operator or me, even the lender?
Speaker 1:I would say Hired in on auto and auto insurance is important to have too often where we see auto insurance but no hired in on auto, which is a small piece but it's potentially a little gap. We definitely see, you know, cyber liability, employment practices, even some directors and officers, or errors and emissions coming through. It all depends on the structure of the operations. Most of the time we see two or three different types of setup. We see an owner operator. We see an owner that has a operator for them like a lessor, or we see an operator that has a manager involved and, depending on how their relationships come together, is important to be protecting who ultimately is the property owner versus the operating entity or the manager. Sometimes they can all be together and sometimes they're separated and time and time again we just try to make sure that they all agree with each other so that at the time of a loss we don't find any one of them without coverage.
Speaker 2:Thank you for that. Appreciate that, Richard. So let's get into describing who your company is and why someone should reach out to you for insurance coverage. Tell us a little bit about USI.
Speaker 1:Thank you very much. So USI is a privately held. We're the largest privately held insurance brokerage firm in the country. We are on the balance sheet of KKR, but we've been in the business for over 20 plus years. I say you know, depending on the, obviously, mergers and acquisitions of everything anywhere from the fifth to seventh largest you know in the world in the ranking over 10,000 employees. But I would say the importance of what we do in the senior living space is that we have and represent over 35,000 beds for me personally and throughout USI, over 300,000 beds countrywide, and we know the industry better than most.
Speaker 1:We have access to every market that is out there and you know we're big on the relationships of connecting with our clients and helping them through. You know the easy times, the difficult times and really just giving them the confidence and knowing that they're in the right place with where they're going. There are other good brokers out there but in the scope of it, there are the brokers that this is what they do and then there are the brokers that you know they'll write a facility or they'll write something to do a senior living related, but not necessarily have a specialty in the area. And I find that if you're going to do business with senior living, you should do it with somebody that knows the industry and has a historical presence in the industry. It definitely helps, and it also understands the language you know of the policies that you're writing, because the language of the policies are a little bit of difference in nuance than other policies that are out there. They're not the traditional brick and mortar policies where you're slip, trip and falls or you're just, you know, a tenant and a landlord, and so I find that from time to time we do see that brokers just don't have that experience that's needed.
Speaker 2:Appreciate that, and how would individuals that want to reach out to you? How do they get a hold of you?
Speaker 1:You know they can reach out to me via my email address. I think I have it on LinkedIn. My phone number is on there as well. I'm pretty available anytime and but it's pretty simple to get a hold of me for the most part.
Speaker 2:All right, we appreciate the time. Today I'm quite a bit above and beyond what I knew. Is there anything else that we haven't asked you that you would want to address to our listening audience?
Speaker 1:I would just say that you know, understanding insurance is an ever-evolving place. It's like the stock market, and you've got to always pay attention to it and you've got to be involved with it and you've got to know what's affecting it, and I think that we do a great job of that. But in any given situation, things change and things shift, and it's one area that I think always has to have somebody that you work with, keep you up to date and involved, and if you don't, I think it's something that can catch somebody off guard for the long haul. So if you don't think you're working with somebody now that is staying abreast to the market space and knowing it well, I would encourage you to look to a broker that does specialize in the industry.
Speaker 2:And my understanding is you're one of the best. So thank you for being on the show today and have a great end of the summer, and we appreciate what you do for the industry. Thank you, richard. Thank you.
