Understanding the concept of “coinsurance” in an insurance policy is crucial for nursing home management, as it can significantly influence a financial outcome after a property loss once an insurance claim is made.

This clause, commonly found in property insurance policies for large-scale operations like nursing homes, ties claim payouts to the level of coverage maintained on the property. If a nursing home's insurance coverage doesn’t meet the specified coinsurance threshold, it could lead to a coinsurance penalty, drastically reducing claim payouts and increasing out-of-pocket costs in the event of a loss.

Coinsurance requirements typically mandate a minimum insured percentage of a property's value, usually between 80% to 100%. In cases of underinsurance, such as a nursing home insured below this threshold, the insurance payout adjusts according to the underinsurance degree. This adjustment compares the actual insured amount to the required level.

For instance, a $1 million valued facility insured for $700,000 faces a payout reduction if the coinsurance requirement is 80% ($800,000). This results in a reduced claim payout and greater repair cost responsibility for the nursing home, emphasizing the need for understanding and adhering to coinsurance requirements. Ensuring accurate coinsurance assessment and management is thus vital for the financial stability and resilience of nursing home facilities.

Case Study: Maple Leaf Nursing Home's Storm Aftermath

Maple Leaf Nursing Home, with a valuation of $2 million, sustained severe structural damage from a winter storm. However, the facility was insured for only $1 million, falling significantly short of the standard 80% coinsurance requirement. When Maple Leaf filed a $500,000 claim for the damages, it was confronted with the reality of underinsurance and the impending coinsurance penalty.

The coinsurance ratio was determined to be 0.625. This figure was derived by dividing the actual insurance coverage ($1 million) by what should have been the minimum insured amount ($1.6 million, i.e., 80% of the property's $2 million value). This miscalculation drastically altered the claim payout. Instead of receiving the full claimed amount of $500,000, the payout was adjusted to $312,500. Consequently, Maple Leaf faced an unexpected shortfall of $187,500. This considerable financial gap not only hindered their repair efforts but also delayed the resumption of normal operations and adversely affected the quality of care for residents.

The Role of Insurance Professionals in Managing Risk

For nursing home facilities, proper insurance coverage is not just a regulatory requirement but a critical aspect of risk management. Ensuring compliance with coinsurance requirements is essential to protect against unexpected financial burdens in the wake of large claims.

By partnering with experienced insurance professionals and maintaining vigilant oversight of their insurance policies, nursing home operators can safeguard their financial interests and ensure the continuity of care for their residents. This proactive approach is fundamental in managing the complex risks associated with large property insurance claims in the nursing home industry.

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About the Author

Stuart Dorf, JD, CPAU | Executive Vice President

Stuart Dorf, JD, CPAU, Executive Vice President at Globe Midwest Adjusters International, is a licensed public adjuster, appraiser, umpire, and attorney who specializes in securing fair insurance claim settlements for property and business owners. With over 20 years of experience in commercial real estate, law, and marketing, he holds licenses in multiple states, actively participates in legal associations, and has a strong entrepreneurial background. He earned his law degree from the Illinois Institute of Technology’s Chicago-Kent College of Law and graduated with honors from Tulane University.

sdorf@globemwai.com | 248.915.0399

Yossi Gottfried, MSA | Regional Vice President

Yossi Gottfried, MSA, Regional Vice President at Globe Midwest Adjusters International, is a forensic accountant specializing in business interruption claims. Yossi leads the firm's nursing home/assisted living facility practice group, advising operators on large insurance claims. His expertise lies in applying insurance policy formulas to accurately assess income loss due to property damage, ensuring clients receive a claim reflective of the true monetary value. He holds a Bachelor of Science in Finance from Yeshiva University and a Master’s in Accounting from Wayne State University.

ygottfried@globemwai.com | 248.885.3902