How do we choose the right retention on a senior care program?

Operators evaluate a retention as a single number: can we absorb a hundred thousand dollar hit. The retention applies per claim, so the real question is how many claims per year reach the retention and what the total is.

A hundred and fifty bed operator with three open claims that each exhaust the retention has spent three retentions, and the ones that settle at or just above the retention are the ones the carrier has the least incentive to fight hard on. Model the annual total, not the single event.

Some senior care programs cap the retention with an aggregate stop, so that once you have paid a stated total in a policy year, subsequent claims attach at a lower retention or at zero. That term converts an unbounded frequency exposure into a bounded one, and it is available in this market.

If it is not on your program, price it. For an operator with meaningful claim frequency, a retention aggregate is often better value than a lower per-claim retention at the same premium.

This decides how fast the retention is consumed. If defense costs erode the retention, a claim that is defended successfully and paid nothing still costs you most or all of the retention. In senior care, where defense spend is high relative to indemnity, defense-eroding retentions get exhausted on claims that produce no payment to anyone.

Confirm it explicitly, and confirm who controls counsel inside the retention. Where you control counsel, retaining the same defense firm across similar claims reduces the total meaningfully, and on an eroding retention that saving is entirely yours.

Take five years of claim counts by severity band. Apply the candidate retention to each year and total what you would have paid. Add a stress year at roughly double your worst historical count, because frequency in this class is not stable. Then check that number against unrestricted cash, not against EBITDA.

Then compare the premium saving from the higher retention against the increase in expected retained loss. If the saving does not exceed the increase by a comfortable margin, the lower retention is the better purchase even though it looks more expensive on the proposal.

Finally, confirm whether the carrier will require collateral at the higher retention, since a letter of credit consumes borrowing capacity and that cost belongs in the comparison.