It is a cautious time for underwriters in the Healthcare insurance industry. The overall hardening of the market continues into 2021 and carriers are pulling back on coverage in key areas in the wake of the COVID-19 pandemic—most notably Senior Care and Nursing Homes. Meanwhile, the Medical Malpractice market expects to see claims of up to $20 billion over the next four years, adding to an already stressed environment for physician and practice coverage.
Additional changes in how healthcare is administered is also having a significant influence on insurance rates. Many patients are acquiring care virtually, which further exposes healthcare providers and their insurance carriers to a number of new risks. Virtual services may not be addressed within existing policies and once added may result in a rate increase.
As a result, insurance brokers and their clients will need to remain versatile, organized, and stay in touch with each other more frequently as insurance markets adapt to new exposures and businesses expand offerings.
State of the market and statistics
The Specialty Healthcare Insurance market continues to experience rate increases—often higher than other business sectors. Year over year, rates have steadily increased and in many cases almost doubled from 2018 to 2019, increasing just over 26.5 percent up from 13 percent. Rates show no signs of leveling off as COVID-19 simply compounded low profit margins. Additional COVID related claims are expected to be filed in the months ahead which may force some carriers to further reduce capacity or leave the market altogether.
This is a similar fate shared by many medical practices across the country. They too are facing the real threat of going out of business, as they wrestle to afford the upward trend in Medical liability premiums, along with reduced patient volumes, reduced generated revenue, and the higher business expenses for medical supplies and PPE.
Today the average claim in the industry is around $450,000, which is unlikely to fall in the near-term. Even more shocking is that over 80 percent of medical malpractice allegations are found to be frivolous. Federal healthcare spending in the U.S. is around $1.4 trillion, with about $910 billion of that in Medicare. The national healthcare expenditure is $4 trillion, or approximately $12,000 annually per person, a whopping 18 percent of GDP.
While rates continue to climb, several Healthcare insurance carriers have changed their appetite, coverage offerings, or have withdrawn from the market all together. Unfortunately, the consistent trend of deteriorating underwriting results, lower loss reserve margins and lower profitability for many Healthcare insurance companies dates as far back as 2008 and has forced many to exit this sector altogether, creating a large capacity issue.
While Medical Malpractice is still costly, working with a wholesaler, like Burns & Wilcox, that has knowledge of local markets, various state programs, and insurance requirements by profession is key. Burns & Wilcox can assist in reviewing standard contract requirements, risk retention group negotiations, and customizing insurance solutions specific for retail agency partners and their clients.
Industry trends are affecting coverage
Medical Malpractice continues to be a challenge for clinicians, from physicians and surgeons to dentists and specialized nurses. As large healthcare/hospital systems have been acquiring large physician practice groups over the last decade, they have been adversely impacted by “nuclear” malpractice claims as a result.
Along with the growth of the outpatient healthcare options listed above, outpatient rehabs, specialty care centers and long-term, assisted living care facilities are opening throughout the U.S. and Canada. These types of businesses all need coverage and tend to be separated into their own silos from an insurance standpoint.
Life sciences and telemedicine grow in relevance
Following COVID-19, new medical device companies, testing, and vaccination services grew.
Life science companies often rely on the use of independent, third party clinical research boards and contract manufacturers, which require separate insurance liability policies. These liability policies provide valuable protection to not only the company, but for the clinical trial itself which can often take 7-12 years to complete when bringing a new device or drug to market.
Telemedicine is also on the rise, including an explosion of growth following the pandemic. The changes spurred by telemedicine are particularly notable. For example, the average in-person physician appointment can be around two hours, while a telemedicine appointment might take no more than 15 minutes—and that entire period includes face time with the physician. Telemedicine regulations are still evolving although the process for payor coding and reimbursement with telemedicine is improving.
Exposure is expected to improve as the pandemic wanes
After a year where some consumers were much more sedentary than average and many preventive screenings and visits were missed, exposure is expected to increase significantly over 2021 to pre-pandemic levels. Studies have predicted a 23 percent increase in cancer diagnosis and 18 percent increase in heart disease diagnoses because of increased screenings.
Carriers are reluctant to write new business to clients having potential COVID-19 exposure, with senior communities being the hardest hit. The result is emerging new markets, with capacity likely to be available from carriers. How this impacts the market at a larger level is yet to be determined.
Other issues remain
Senior care facilities have particularly felt the brunt of the pandemic with claims expected to continue. An added challenge for that industry is staffing shortages, especially for aid care which is a low-paying profession. The enhanced unemployment benefits and higher risk of COVID-19 exposure have left many senior care facilities devastatingly short staffed.
D&O lines have increased by about 40 percent in 2021 and renewal quotes deploy fewer limits. Some terms and condition enhancements have disappeared. Furloughs and staffing shortages in non-senior facilities is impacting D&O and other lines of healthcare.
The impact of Cyber also looms large. The healthcare industry has the largest average cyber loss of any industry at $7.1 million per claim. Cyber premiums and rates have increased by an average of 35 percent. It remains an area of growth because of how critical cyber insurance is, with clients now being required to use such strategies as multi-factor ID and other risk mitigation technologies. Encryption is a requirement for many policies. Ransomware claims are averaging about $175,000 per event within the industry and they remain difficult to track.
Sexual abuse and molestation (SML) coverage (generally employees on patients) is also on the rise although standard markets have pulled back limits or released standalone products which offer narrower coverage than if the SML was written as a package with the professional and general liability coverages.
Restrictive language is also typically accompanied within the SML policy standalone form and insureds often find the claims handling process a difficult one as the policy language typically excludes any negligence as a result of management oversight.
Steps you can take
Completing a submission with as much information as possible is critical. Knowing the loss run and having survey data will help your Burns & Wilcox professionals to negotiate better terms. Detailed financials and COVID-19 protocols should also be available to carriers.
Burns & Wilcox has comprehensive subscription services that provide us with updates on litigation and claims news to help formulate a successful strategy. We can also measure carrier appetites, endorsement availability and more.
Perhaps the most important thing is transparent communication to develop a renewal strategy, even at mid-year. Not waiting until just before renewal to chat about anti-trust litigation that may affect your insurability is recommended.
Burns & Wilcox has the expertise and coverage to make sure your clients can get the coverage they need in today’s competitive markets.
Contributor(s): David Derigiotis, Corporate Senior Vice President, National Professional Liability Practice Leader, Burns & Wilcox; Greg Wideman, Manager, Healthcare, Burns & Wilcox; Nicole Greene, Associate Vice President, Director, Professional Liability, Burns & Wilcox
This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.