Nursing Home Liability Insurance Crisis: How We Can Help
Quick Insights Box
The senior living insurance market faces unprecedented challenges with liability rates increasing 300%, major carriers exiting, and COVID-related lawsuits creating additional uncertainty. Facilities nationwide struggle to find affordable coverage, forcing many to explore alternative risk management strategies including captives, self-insurance, and risk retention groups.
Key Takeaways
- Professional liability rates for nursing homes have increased 300% since 2020
- Over 40% of traditional insurance carriers have exited the senior living market
- Alternative solutions like captive insurance can reduce costs by 25-40%
- Self-insurance programs require minimum $5 million in reserves but offer long-term savings
- Risk retention groups provide collective bargaining power for facilities
The Perfect Storm: Why Nursing Home Insurance Markets Are Collapsing
The senior living insurance crisis didn’t happen overnight. We’ve watched this unfold across our client portfolio since 2019, and what we’re seeing now represents the culmination of multiple converging factors that have fundamentally broken the traditional insurance model for long-term care facilities.
Speaking with our senior living clients last quarter, one administrator in Houston told us, “We’ve been with the same carrier for fifteen years. They didn’t just raise our rates—they completely withdrew from the market with sixty days’ notice.” This scenario has become devastatingly common.
The Nuclear Verdicts Driving Carrier Exits
The insurance industry uses the term “nuclear verdict” to describe jury awards exceeding $10 million. In the senior living sector, these verdicts have become increasingly common. According to data from the American Health Care Association, the average settlement for nursing home liability claims increased from $406,000 in 2018 to over $1.2 million in 2024.
What’s driving these astronomical awards? Several factors converge:
Sympathetic plaintiffs: Elderly residents and their families naturally evoke strong emotional responses from juries. When negligence or abuse allegations surface, juries tend to award substantial punitive damages beyond actual damages.
Litigation funding: Third-party litigation financing has exploded in the senior care sector. These companies fund lawsuits in exchange for a percentage of settlements, enabling more aggressive legal strategies and prolonged litigation that smaller facilities can’t afford to fight.
Social inflation: Juries increasingly view large corporations and healthcare facilities as deep pockets, awarding damages based on sending messages rather than actual harm. We’ve seen cases where actual damages totaled $50,000, but punitive damages exceeded $5 million.
Understanding the 300% Rate Increase Reality
When carriers quote 300% rate increases—if they quote at all—they’re not arbitrarily inflating prices. Our analysis of carrier loss ratios in the senior living sector reveals a sobering picture.
Hartford’s senior living division reported loss ratios exceeding 120% for three consecutive years before exiting the market entirely. Travelers followed suit after experiencing similar losses. Even specialty carriers like ProAssurance and Medical Protective have dramatically restricted their appetite for nursing home risks.
Breaking Down the Cost Drivers
Through our work with actuarial consultants, we’ve identified the primary factors driving these rate increases:
Resident abuse and neglect claims (45% of losses): These claims, whether founded or not, generate massive defense costs even when facilities ultimately prevail. The average defense cost for an abuse claim now exceeds $250,000, regardless of outcome.
Professional liability/malpractice (30% of losses): Medical complexity in nursing homes has increased dramatically. Facilities now care for residents who would have been in hospitals twenty years ago, but insurance pricing hasn’t adjusted for this increased acuity until recently.
COVID-19 related litigation (15% of losses): While many hoped COVID lawsuits would fade, they continue proliferating. Wrongful death claims related to pandemic responses remain active in courts nationwide, with many cases just reaching trial phases.
Employment practices liability (10% of losses): Staff turnover exceeding 100% annually in many facilities creates constant employment-related claim exposure. Wrongful termination, discrimination, and wage-and-hour claims have spiked.
Alternative Markets: Your Options When Traditional Carriers Exit
After twenty-three years helping senior living facilities navigate insurance markets, we’ve developed strategies for accessing coverage when traditional markets disappear. Here’s what’s actually working for our clients:
1. Captive Insurance Programs
Captive insurance isn’t just for Fortune 500 companies anymore. We’ve helped three senior living groups establish captives in the past eighteen months, and the results speak volumes about this strategy’s viability.
One client group with eight facilities across Texas saved 35% on their total insurance costs within two years of forming their captive. More importantly, they gained control over their risk management destiny.
How captives work for senior living: Instead of paying premiums to traditional carriers, facilities fund their own insurance company (the captive). This captive then purchases reinsurance for catastrophic losses while retaining predictable claims within the captive structure.
Minimum requirements we’ve seen work:
- At least $3 million in annual premiums across all lines
- Strong risk management protocols with documented success
- Financial stability to fund initial capitalization (typically $500,000-$1 million)
- Commitment to long-term risk retention strategy
The real advantage: Beyond cost savings, captives allow facilities to benefit from their good loss experience. Traditional insurance means paying premiums that subsidize other facilities’ losses. With a captive, your good risk management directly benefits your bottom line.
2. Risk Retention Groups (RRGs)
Risk retention groups offer collective strength for standalone facilities that can’t justify forming their own captive. We’ve placed dozens of clients with RRGs, and they’ve become lifelines for many facilities.
Current active RRGs for senior living:
- Senior Care Risk Retention Group (covering 400+ facilities nationwide)
- Healthcare Providers RRG (mixed healthcare facilities including senior living)
- Regional alternatives like Texas Healthcare RRG
The RRG advantage: Members own the RRG, meaning they share in underwriting profits and have voice in coverage decisions. Unlike traditional insurance, RRGs can’t abandon markets when things get tough—they exist specifically to serve their members.
Considerations before joining: RRGs typically require capital contributions (we’ve seen $25,000-$100,000 requirements) and may assess members if losses exceed projections. Due diligence on the RRG’s financial stability is crucial.
3. Self-Insurance Programs
For larger operators, self-insurance has become increasingly attractive. We’re working with two clients currently transitioning to partial self-insurance models, and the economics are compelling for the right organizations.
Successful self-insurance requirements:
- Minimum 500 beds across facilities (for adequate risk spread)
- $5-10 million in liquid reserves for claim funding
- Sophisticated risk management infrastructure
- Excess coverage for catastrophic losses (attachment points typically $500,000-$1 million per claim)
The financial reality: One client with 750 beds across six facilities projects saving $1.2 million annually through self-insurance after accounting for claim costs, administrative expenses, and excess coverage premiums.
4. Surplus Lines Markets
When admitted carriers flee, surplus lines markets sometimes fill gaps—at a price. We’ve accessed coverage through London syndicates, Bermuda carriers, and other non-admitted markets for clients with no other options.
What to expect from surplus lines:
- Premiums 40-60% higher than historical admitted market pricing
- Restrictive terms with numerous exclusions
- Higher deductibles ($50,000-$250,000 per claim common)
- No state guarantee fund protection
When surplus lines make sense: For facilities needing bridge coverage while implementing alternative strategies, surplus lines provide breathing room. We never recommend them as permanent solutions due to cost and coverage limitations.
Implementing Advanced Risk Management to Lower Costs
Insurance is just risk transfer—true protection comes from risk management. Our most successful senior living clients have invested heavily in risk management infrastructure, and it’s paying dividends in lower insurance costs and better resident outcomes.
Technology Solutions That Actually Impact Premiums
We’ve seen facilities reduce insurance costs by 15-20% through technology adoption. Here’s what’s actually moving the needle with underwriters:
Electronic health records (EHR) with built-in risk alerts: Systems like PointClickCare and MatrixCare that flag fall risks, medication interactions, and care plan deviations demonstrate proactive risk management to carriers.
Wander management systems: RFID-based resident monitoring reduces elopement risks—a major liability concern. Facilities using systems like Accutech or GuardRFID report 70% fewer elopement incidents.
Real-time staff communication platforms: Apps like HIPAA-compliant versions of Slack or Microsoft Teams improve care coordination and create documentation trails that support defense against negligence claims.
Advanced wound care documentation: Photographic wound documentation systems with measurement capabilities provide irrefutable evidence of appropriate care, crucial for defending pressure ulcer claims.
Staffing Strategies That Reduce Liability
Staffing challenges create cascading liability risks. Here’s what’s working for our clients:
Guaranteed staffing ratios: Facilities guaranteeing minimum staffing ratios (even if it means turning away admissions) see fewer negligence claims and better insurance terms.
Professional development investments: One client reduced turnover by 45% through tuition reimbursement and career advancement programs. Lower turnover directly correlates with fewer claims.
Background check enhancement: Going beyond state requirements with nationwide criminal checks, license verification, and reference validation reduces bad hire risks.
COVID Litigation: The Shadow Still Looming
Three years post-pandemic, COVID litigation continues plaguing the senior living sector. We’re tracking over 3,000 active COVID-related lawsuits against nursing homes nationwide, with new filings still occurring monthly.
Current COVID Claim Trends
Wrongful death allegations: Families allege facilities failed to implement adequate infection control, inappropriately admitted COVID-positive residents, or delayed hospitalization.
Regulatory violation claims: Plaintiff attorneys use regulatory citations as evidence of negligence, even when citations were later withdrawn or reduced.
Emotional distress claims: Family members claiming emotional distress from inability to visit during lockdowns or from witnessing decline via video calls.
Defending Against COVID Claims
Working with defense counsel across multiple states, we’ve identified strategies that successfully defend COVID claims:
Immunity statute utilization: Many states enacted liability shields for healthcare providers during the pandemic. Proper documentation of resource limitations and good-faith compliance with changing guidelines is crucial.
Expert testimony on standard of care: The standard of care during March 2020 differed vastly from December 2020. Expert witnesses who can articulate these evolving standards provide powerful defenses.
Documentation of impossible choices: Facilities that documented their decision-making processes—choosing between conflicting regulatory guidances, managing staff shortages, dealing with PPE scarcity—have stronger defenses.
Building Your Insurance Strategy for 2025 and Beyond
The senior living insurance market won’t return to pre-2019 conditions. Accepting this reality allows focusing on sustainable solutions rather than waiting for markets to “recover.”
Immediate Action Steps
1. Audit your current coverage: Many facilities don’t fully understand their coverage until claims arise. We offer complimentary coverage audits that frequently identify gaps or redundancies worth addressing.
2. Benchmark your rates: Understanding whether your 300% increase aligns with market conditions helps negotiate or justify exploring alternatives.
3. Document risk management improvements: Every risk management enhancement should be documented and presented to underwriters. We’ve seen 10-15% premium credits for well-documented improvements.
4. Explore alternative markets now: Don’t wait until renewal. Establishing captives or joining RRGs requires lead time. Starting conversations six months before renewal provides options.
5. Consider partial self-insurance: Even retaining the first $100,000 of losses can dramatically reduce premiums while keeping catastrophic protection.
Long-Term Strategic Planning
The facilities successfully navigating this crisis think in 3-5 year horizons, not annual renewal cycles. They’re investing in:
- Risk management infrastructure that reduces actual claim frequency
- Alternative risk financing that provides long-term stability
- Industry associations that advocate for tort reform
- Quality metrics that demonstrate superior care standards
Partner Carrier Solutions and Specialty Programs
While many carriers have exited, some remain committed to the senior living sector with specialized programs:
Cincinnati Insurance offers admitted coverage in select states for facilities meeting strict quality criteria. Their senior living program requires AHCA Quality Initiative participation but provides stable, long-term partnerships.
Chubb’s specialty healthcare division still writes select senior living accounts, particularly continuing care retirement communities (CCRCs) with strong financial positions and documented risk management.
Pure Insurance has developed programs for high-net-worth senior living communities, particularly those with entrance fee models and affluent resident populations.
Frequently Asked Questions
Why have insurance carriers abandoned the nursing home market?
Insurance carriers have fled the nursing home market due to unsustainable loss ratios exceeding 120%, nuclear verdicts averaging $1.2 million per claim, COVID-19 litigation creating unprecedented uncertainty, and social inflation driving jury awards beyond actuarial models. The combination makes traditional insurance models economically unviable for many carriers.
What is a realistic insurance budget for a 120-bed nursing home in 2025?
Based on current market conditions, a 120-bed nursing home should budget $400,000-$600,000 annually for general liability and professional liability coverage, assuming no major prior claims. This represents a 250-300% increase from 2019 levels. Facilities with adverse loss history may face premiums exceeding $800,000 or may only access surplus lines markets at even higher costs.
Can nursing homes operate without professional liability insurance?
While some states permit self-insurance with appropriate financial reserves, operating without professional liability coverage exposes facilities to catastrophic financial risk. We’ve seen single claims exceed $10 million. However, some facilities successfully operate with high deductibles ($250,000-$500,000) combined with excess coverage, effectively partially self-insuring while maintaining catastrophic protection.
How do captive insurance companies reduce nursing home insurance costs?
Captive insurance companies reduce costs by eliminating insurance carrier profit margins (typically 5-10%), returning underwriting profits to the insured facility, providing control over claim handling reducing defense costs, and enabling investment income on reserves to offset premiums. Well-managed captives typically achieve 25-40% cost savings over 3-5 year periods compared to traditional insurance.
What risk management strategies provide the best premium reductions?
Falls prevention programs with documented protocols can reduce premiums by 10-15%. Electronic medication administration records (eMAR) with barcode scanning demonstrate 20% premium impact. Certified wound care nurses on staff 24/7 provide 5-10% credits. Wander management systems for memory care units offer 5-8% reductions. Combined comprehensive risk management programs can achieve 25-30% premium reductions.
Are COVID-19 lawsuits still a threat to nursing homes?
Yes, COVID-19 litigation remains active with over 3,000 pending cases nationwide. New filings continue monthly, though at decreasing rates. Statutes of limitations extend 2-3 years in most states, meaning facilities face exposure through 2025-2026 for pandemic-era care. While some states enacted immunity laws, their effectiveness varies, and federal litigation remains possible.
Conclusion: Navigating Forward
The nursing home insurance crisis demands innovative thinking and proactive strategies. Traditional approaches—shopping markets, hoping for rate decreases—won’t succeed in this fundamentally altered landscape. Facilities must embrace alternative risk financing, invest in demonstrable risk management, and think strategically about long-term sustainability.
At Hotaling Insurance Services, we’ve guided senior living facilities through market cycles for over two decades. This crisis is unprecedented, but solutions exist for facilities willing to adapt. Whether through captives, RRGs, self-insurance, or creative program structures, we’re committed to finding coverage solutions that keep quality senior care accessible and sustainable.
The path forward requires courage to embrace new models, investment in risk management infrastructure, and partnerships with advisors who understand both traditional and alternative markets. The facilities thriving despite these challenges prove that success remains possible—it just looks different than it did five years ago.
Author: Hotaling Team
Review Date: September 24, 2025
Disclaimer: This article is for informational purposes only and does not constitute financial or insurance advice. Consult with our qualified insurance professionals for guidance specific to your facility’s situation.