Healthcare is a diverse industry, ranging from individual practitioners and home health nurses, to ambulatory care centers and integrated systems with revenues in the billions of dollars. The risks along that spectrum also vary widely, but the insurance marketplace for healthcare organizations has been almost uniformly tight. Several insurance companies that underwrote healthcare business for decades have withdrawn from some classes, citing high loss ratios. In their place, new sources of capacity have emerged. Historically, the presence of new entrants has signaled competition and a loosening of terms, conditions and rates. Unfortunately for insureds, that is not happening in the current marketplace. It's a challenging environment that requires retailers to approach the renewal process differently.
While renewal premiums are flattening in some classes, driven by newcomers competing for business, other accounts continue to see double-digit increases. Retentions are higher, limits offered on individual layers are lower, and some markets are applying coinsurance and sublimits to certain exposures, particularly in cyber coverage. Across the board, underwriters are seeking more information to assess and price healthcare risks than they have in the past. These trends are putting an emphasis on complete, accurate coverage applications that make it easier for insurers to understand insureds' risk profiles.
In 2020 and early 2021, insurance companies writing healthcare business were panicked by the COVID-19 pandemic, fearing widespread losses as the coronavirus spread. Even as cases rise and variants of the virus have emerged, insurance markets are not exhibiting panic but rather are taking a wait-and-see approach. To date, despite an uptick in COVID-19 incidence, claims have not hit insurers yet.1
Underwriters continue to pursue growth opportunities among smaller and larger entities. Unlike in the past, however, new entrants are not lowballing their coverage quotes or giving a pass to accounts with poor loss histories.
"Allied health" is a diverse, catch-all category that encompasses medical laboratories, home healthcare and other healthcare services, including but not limited to hospice, imaging centers, outpatient behavioral health clinics, therapy and rehabilitation services, and virtual health services such as mental health and wellness centers. New market entrants are pursuing this segment because they see opportunities in it.
Home healthcare and nurse staffing firms are among the fastest-growing firms in allied health – a trend that predates the pandemic but accelerated as the coronavirus placed strains on healthcare providers. Over the past year, there has been significant growth in specialty companies, such as those performing COVID-19 testing, but those opportunities tend to come and go.
EXCESS HOSPITAL LIABILITY
With every exit of an established healthcare insurance market, there has been a newcomer. For certain segments, there are more markets than there were a year ago, and excess hospital liability is one of those. However, new markets in the healthcare space are not necessarily booking premium from larger accounts. A reason for that is concern by large healthcare organizations' risk managers about newcomers' staying power.
Multibillion-dollar hospitals and health systems that receive a proposal from a lesser-rated company at 50% of the expiring premium are more likely to question the long-term viability of a market like that. If XYZ Newcomer comes in at half the price to replace markets that were in the healthcare space for many years, risk managers don't want to go through the same process to replace lost capacity two years from now. Larger healthcare organizations are looking for financial stability, commitment to the healthcare space, and knowledge of their business.
One change in excess liability is insurers no longer are willing to offer large limits. At one time, $20 million layers were readily available for excess programs. That is no longer the case. As a result, some organizations have cut back on how much coverage they buy. For example, a healthcare organization that might previously purchase $300 million in excess limits might settle for $250 million because they couldn't get enough $10 million layers to replicate the prior limits. Capacity remains plentiful, but it's expensive. A factor in excess liability pricing is claims inflation and jurors' shifting attitudes. Anti-corporate sentiment is driving juries to issue larger awards.2
The single most difficult segment in healthcare, senior living facility operators saw the insurance marketplace turn from soft to hard almost overnight in the past 24 months. Renewal increases ranged from 30% to 60%. While carriers are beginning to offer relief, 10% to 15% increases are still commonplace. Conditions for senior living facilities won't soften, but they likely will become less erratic, in the next few renewal cycles.
The slowing rate of increases is driven by new entrants that have been writing senior living for less than one year. At least five new markets have emerged in the last 24 months. Senior living remains a high-risk segment, and losses incurred during 2016 and 2017 are still developing.
Among specialty niches in healthcare, two are seeing a great deal of rate pressure in the current marketplace:
Locum tenens. These staffing firms specialize in placing physicians and advanced practitioners in temporary assignments in hospitals and other care settings. Numerous insurance markets have exited this segment, which historically may have been underpriced. Locum tenens – Latin for "one holding a place" – have become targets for lawsuits alleging errors, omissions or failure to diagnose serious conditions that lead to bad outcomes. In liability claims against locum tenens firms, plaintiffs tend to pursue every pocket, meaning a staffing firm that had only one employee in a case could see half a dozen or more co-defendants facing allegations regarding credentialing and due diligence.
Correctional medicine. Healthcare providers delivering care to prisoners in jails and correctional facilities are attracting liability claims amid attitudinal shifts toward criminal justice. As a result, judicial venues that weren't hotbeds of malpractice litigation are becoming among the worst in various cases. For example, Oregon is not known for medical malpractice claims, but an anti-law enforcement mindset is leading to claims against correctional medicine providers.
Multimillion-dollar verdicts are not unexpected in Cook County, Illinois, or Dade and Broward counties in Florida, but then there will be a $20 million verdict in Dubuque, Iowa. The hot spots for litigation are still hot, but increasingly, plaintiffs don't care as much as where you provided care as much as what you do as a provider.
CYBER RISKS GET MORE SCRUTINY
The nature of healthcare entails collecting and holding sensitive data, which has increased the cyber risks of all healthcare organizations. As the cyber insurance marketplace has developed over the past decade, underwriters have abandoned their practice of providing quotes in exchange for little information. Steep increases in ransomware and social engineering have resulted in insurers getting hammered with claims. As a result, underwriters are giving much more scrutiny to healthcare accounts.3
In addition to requiring insureds to have certain security measures, such as multifactor authentication and endpoint detection, underwriters are inquiring about how data is backed up and stored, and how frequently staff receive training in cybersecurity. An organization's size and security posture are critical areas of focus for insurers, rather than the type of healthcare business.
Some insurers will issue cyber coverage with sublimits on claims involving extortion or business interruption, and increasingly those sublimits are staying in place until the next renewal. Most insurers will no longer provide quotes subject to some condition, such as improving cybersecurity within 30 days of binding. Strong security postures have become a prerequisite to obtaining coverage. For many cyber underwriters, first impressions count. Therefore, insureds should take care to present an accurate picture of their cybersecurity posture.
Healthcare industry insureds are in a challenging environment – both in running healthcare businesses as well as in obtaining cost-effective risk transfer solutions. Finding adequate coverage in the marketplace is only part of the puzzle. Retaining more risk and paying more for available limits are also in the equation, which is why many insurance buyers in the healthcare sector tend to shop their insurance programs at every opportunity. Retailers can provide valuable support and advice to insureds when they:
- Know the client's business. Healthcare is a diverse industry, with each segment facing different kinds of exposures. Thorough knowledge of an insured's business, its competitive pressures and how it operates day to day, is critical to delivering sound risk management solutions.
- Begin the renewal process early, with expert guidance. Many retailers go first to their clients before seeking the expertise of a wholesale specialist. In the current healthcare insurance market, however, a better approach is to seek the wholesale specialist's broad view of the marketplace first. Talking through market conditions and changes can inform and guide retailers' conversations with their insureds. Beginning renewal discussions at least 90 days out is prudent, as it provides time to gather additional required information and make necessary adjustments, such as improving cybersecurity.
- Present the client's risks fully and clearly. Applications should offer a detailed summary of what the client does in the healthcare sector. Underwriters should not have to search for answers.
Coverage solutions are available in the current marketplace, but they typically come at a price. Working with a wholesale specialist experienced in the healthcare sector is the surest way to efficiently find the most appropriate options.
- Bob Allen is president of Pro-Praxis, a CRC Group company providing specialty programs to large healthcare organizations, based in New York.
- Rusty Hughes is a senior broker in the Birmingham, Alabama, office of CRC Group.
- Alex Gould is a broker in the Birmingham, Alabama, office of CRC Group.
- “Understanding & Navigating 2021's Hard Healthcare Market," CRC Group, March 19, 2021; https://www.crcgroup.com/Tools-Intel/post/understanding-navigating-2021-s-hard-healthcare-market
- “Excess & Umbrella REDY Index June 2021," CRC Group; https://www.crcgroup.com/Tools-Intel/post/excess-umbrella-redy-index-june-2021
- “Cyber REDY Index June 2021," CRC Group; https://www.crcgroup.com/Tools-Intel/post/cyber-redy-index-june-2021