The Growing Risk of Underinsured Catastrophic Liabilities in Senior Care Facilities and Its Impact on Healthcare Infrastructure Investments

The aging U.S. population has driven unprecedented demand for senior care services, but this demographic tailwind is increasingly shadowed by a critical risk: underinsured catastrophic liabilities in senior care facilities. As operators grapple with rising claim severity, staffing shortages, and regulatory pressures, the financial stability of healthcare infrastructure investments is under strain. This analysis explores how these liabilities are reshaping the sector's risk landscape and what investors must consider to navigate the evolving market.

The Escalating Burden of Catastrophic Liabilities

Senior care liability insurance costs have doubled over the past decade, with skilled nursing facilities (SNFs) facing the steepest increases. The average claim payment for SNFs now exceeds $210,000 per incident, driven by factors such as nuclear verdicts-jury awards surpassing $10 million-and the proliferation of third-party litigation funding. Legal strategies like "reptile theory," which frames negligence cases as moral failings, have further inflated indemnity payments.

Memory care and dementia-focused facilities, which serve highly vulnerable residents, face unique challenges. Incidents such as resident elopement, aggression, and behavioral episodes are becoming more frequent and costly. These facilities, often less regulated than SNFs, are now under intense underwriting scrutiny. Carriers in states like California and Florida are imposing higher deductibles, narrower coverage terms, and sub-limits on abuse coverage. For example, slip-and-fall claims that once settled for $150,000 now routinely exceed $350,000.

Financial Strain on Operators and Investment Returns

The rising cost of liability insurance is compounding financial pressures for senior care operators. According to a report by , operators are contending with declining reimbursement rates, inflationary labor costs, and staffing turnover rates exceeding 100% annually in some facilities. These challenges are eroding profit margins and straining capital budgets.

Investors are also feeling the ripple effects. A 2025 JLL survey notes that while demand for seniors housing remains robust due to the growing 80+ demographic, underinsured liabilities are complicating infrastructure investment returns. For instance, the emergence of alternative insurance solutions like captive insurance-where a group of Texas-based facilities saved 35% on total insurance costs-requires significant upfront capital and risk management expertise. Smaller operators, lacking these resources, face higher default risks, which could destabilize portfolios reliant on senior care assets.

Investor Risk Assessments and Market Fragmentation

The liability insurance market for senior care has become increasingly fragmented. Traditional carriers are recalibrating underwriting criteria or exiting the market, while new entrants use predictive analytics to fill capacity gaps. This volatility has led to inconsistent coverage terms and pricing. For example, in high-risk jurisdictions like Cook County, Illinois, carriers are imposing stricter underwriting standards, including detailed reviews of staffing ratios, monitoring technologies, and historical loss data.

Investors must now factor in these uncertainties when assessing risk. A report by Amwins highlights that underwriters are prioritizing facilities with transparent ownership structures, strong operational performance, and robust risk management protocols. Facilities with frequent ownership changes or poor inspection records face higher premiums or coverage denials according to recent market analysis. This shift underscores the importance of due diligence in evaluating the long-term viability of senior care assets.

Mitigation Strategies and the Path Forward

Operators and investors are adopting proactive measures to mitigate risks. Enhanced documentation practices, staff training on safety protocols, and investments in technologies like fall detection systems and electronic medical records (EMRs) are improving claims defensibility. For example, facilities using EMRs can demonstrate compliance with care standards, potentially reducing litigation exposure.

However, these strategies require capital. A 2025 Commerce Healthcare report notes that the sector's reliance on alternative insurance models-such as risk retention groups and self-insurance-has grown. While these solutions offer cost savings, they demand financial discipline and a strong risk culture. For investors, this means prioritizing operators with proven risk management frameworks and diversified revenue streams.

Conclusion: Balancing Risks and Opportunities

The senior care sector remains attractive due to demographic trends and below-replacement-cost real estate acquisitions. Yet, underinsured catastrophic liabilities are reshaping the investment calculus. Operators must navigate a fragmented insurance market, while investors must weigh the sector's long-term potential against its operational and financial risks.

For healthcare infrastructure to thrive, stakeholders must prioritize transparency, innovation, and resilience. As the sector evolves, those who adapt to the new risk landscape will be best positioned to capitalize on the opportunities ahead.