While the COVID-19 pandemic offered new challenges, the healthcare market was already primed to be tough in 2021. After more than 10 years of a soft market and deteriorating results, it started to turn in the latter half of 2019. Launching into the new year, significant rate and retention increases, lower limits, and more policy movement toward claims made, was expected. However, the coronavirus amplified all of these issues, and while market adjustments were sorely needed, it remains unclear how long it will take to bring the business back to profitability.
WHAT DOES THE HEALTHCARE MARKET LOOK LIKE IN 2021?
It's anticipated that the market will remain difficult as it continues to correct, and that will be reflected in slashed capacity, skyrocketing rates, and much tighter terms. Many carriers are cutting capacity by around 50%. Markets that previously put up $15M-$20M are now only extending $5M-$10M, requiring brokers to partner with 2-4 carriers to fill a tower. While pricing is also up across the board, good, non-severity driven business will find that rates remain doable. However, in the senior living segment, insureds can expect to see rate increases in the range of 15%-30% depending on the venue, market, and claims history. The mid-severity mix of segments including healthcare staffing and medical transport should brace for price hikes in the range of 20%-45%. There’s some hope that rates will begin to drop in the next 6-12 months, but the pandemic may slow down the injection of new capacity that would help to suppress rates until it becomes clear how carriers handle thousands of potential COVID-19 claims.
Clients should also prepare to begin seeing a new wave of exclusions originally started by reinsurance companies that have taken the brunt of larger claims. Some reinsurers are asking insurance company clients to include class-action exclusions on hospital, laboratory, or multi-site clinic accounts. These were previously common in D&O for life science and pharmaceutical clients but are now starting to crop up in new areas. Carriers are also starting to apply deductibles per claimant when it comes to abuse claims as a way to reduce exposure for reinsurance, which means insureds are taking on more risk. This will be a continuing trend in 2021 as reinsurers attempt to limit their exposure.
Unsupported excess will remain particularly difficult because as claims start to hit, the commercial carriers that are competitors on other deals may be hesitant to share claims handling information. A lack of claims information makes it difficult to predict losses coming through on the excess, resulting in compressed limits and higher prices. In addition, while rate increases are driven in part by the insured’s experience, the average cost of defending claims and paying out socially inflated jury awards has only risen over time. Research indicates that in 2019, more than 30 jury awards of over $10 million each, resulted in a combined total of more than $1 billion in medical liability verdicts. In addition, the average number of claims costing more than $7 million has increased by greater than 200% in recent years, driving up insurance prices and retention amounts.4
HOW IS THE MARKET IMPACTING SPECIFIC SEGMENTS OR COVERAGES?
While the tight environment is impacting the healthcare market as a whole, some segments are experiencing more difficulty than others.
SENIOR LIVING & LONG-TERM CARE (LTC)
All eyes remain on LTC, healthcare’s largest segment, where potential COVID-19 class-action claims and punitive damages could become a big issue. In addition, while the protection of vaccines is a positive mitigating factor for some lines, they aren’t changing the minds of those that insure LTC or residential facilities like in-patient drug rehab centers. There also isn’t as much reinsurance support for senior living or medical liability right now, and many insureds are taking on larger retentions which gives them a larger stake in the claims process.
Physician malpractice in the standard market is tighter than it was, but it’s not pushing significant business to the E&S side yet as it remains the softest of the healthcare segments. When it comes to physicians or healthcare facilities, high rates of employee vaccination can help mitigate potential COVI-19 risks and makes it easier to quantify the client’s exposures for insurers and reinsurers.
The increased frequency of special abuse cases incurred over the last 5 years is making coverage for social service accounts almost impossible to find with acceptable limits. Any kind of social service account that handles medical-related services such as mobile clinics, residential care, or child welfare is especially tough. In addition, if a risk isn’t renewed or doesn’t fit in the standard market, the difference between results in the standard space and the E&S market is substantial because there are even fewer markets for social service accounts than for senior living.
CORRECTIONAL CARE, LOCUM TENENS, & STAFFING
In 2021, correctional care is almost impossible to place as those submissions are being declined by almost every market. Nurse/physician staffing with as little as 25% of the exposure associated with correctional care is being treated as if it is 100%. Locum tenens and healthcare staffing is also becoming very challenging, along with medical transport.
There has been a significant drop in the capacity available for this class. Larger accounts that buy $200M-$300M in limit are having to consider the costs/benefits of this much limit. In some cases, the capacity is not available, leading to a reduction in their limit purchase. Smaller, urban hospitals (sometimes referred to as safety net hospitals) are also a challenge. Because their financial position does not allow them to retain a lot of risk, there are very few markets who want to assume the risk in venues with aggressive plaintiff firms. Small, non-urban hospitals in tough venues like New Mexico and Kentucky are being entertained by a small number of commercial markets.
MISCELLANEOUS MEDICAL, CYBER, & FFCA
The miscellaneous medical markets responsible for covering insureds such as outpatient facilities or ancillary providers are firm, but E&S options remain available with spikes in retention and price. However, cyber coverage for healthcare clients is now finding its way to the open market where higher premiums, lower limits, and stricter terms and conditions are now the norm. Previously, many standard market carriers included cyber coverage with physician medical malpractice provisions, but that’s no longer the case as claims start to roll in. Those practitioners that bill Medicare or Medicaid may also find that their rates for Federal False Claims Act billings coverage are also rising in 2021.
WHAT ARE THE BIGGEST CONCERNS FACING THE HEALTHCARE MARKET IN 2021?
There are several concerns agents and brokers should keep an eye on in 2021. The way they play out across the year will significantly impact how the healthcare market responds.
UNKNOWN COVID-19 IMPACTS
COVID-19 remains a wildcard. It’s unclear how it will affect liability claims and losses. The impact could be miniscule, or it could be catastrophic. Until decisions are made on COVID-19 claims, carriers will continue to be cautious with capacity and terms.
FINANCIAL STABILITY OF HEALTHCARE CLIENTS
Secondly, the financial status of the LTC sector is an area worth watching. Carriers are spending more time investigating financials to determine if these providers really have the money to operate well. Occupancy is down 10-15 points, and it’s unclear when the sector will rebound because admits are down. Many accounts have spent millions on staffing and PPE needs, but are still battling operational issues. It remains to be seen what effect these costs will have on staffing levels, basic services, and subsequent loss drivers. On the hospital side, many facilities and specialist providers count on elective procedures to fill operational coffers, but those services have been put on hold for the last several months, making their financial viability unclear. While there hasn’t been a substantial increase in M&A activity in the healthcare sector to date, it’s something worth keeping an eye on as insureds strive to maintain their operational health.
INCREASED OVERSIGHT & SCRUTINY
Due to the negative publicity shining a spotlight on the senior living industry, it’s anticipated that a greater number of negligence, quality of care, or wrongful death claims will be filed as a result of COVID-19.1 In addition, greater oversight of healthcare facilities will likely result in some level of scapegoating, which also increases the potential for claims.
DISMISSING POTENTIAL LONG-TERM IMPACTS
Many on both the brokerage and carrier sides of the business are assuming that rate increases will end after a 2-3 year hard market. In reality, this will likely be a more protracted situation. Because multiple factors are converging at once, a normal soft/hard market isn’t expected. There will be an eventual resurgence in capacity that will help keep pricing in line based on supply and demand. But, it’s important to remember in a long-tale line of business that the broadest product at the lowest price isn’t always in the client’s long-term interest.
HOW CAN AGENTS HELP CLIENTS NAVIGATE THE MARKET?
Capitalizing on strong industry relationships and ensuring the quality of underwriting information is more important than ever. Carriers are anticipating 4,000+ submissions in 2021. Upwards of 80% of those submissions will be declined due to lack of quality. Agents should start the renewal process 90 - 120 days out, allowing plenty of time to set expectations and gather needed data so that underwriting reviews can begin 45-60 days in advance of renewal.
PROACTIVELY MANAGE CLIENT EXPECTATIONS
Retail agents and brokers play a vital role in this hard market. Agents will benefit from proactively communicating coming changes in premium, terms, and conditions to clients and explaining the multiple variables leading to increases.
CREATE ACCURATE & THOROUGH SUBMISSIONS
Underwriters want to work with those that understand their products and expertly represent business in the marketplace. Brokers and agents with reputations for healthcare expertise are more likely to attract the attention of underwriters and find their submissions at the top of the stack. In this environment, underwriters expect agents to get close to customers, understand their business and potential exposures, and document risk management programs. If an account does have a claim history, the submission should describe the particulars of the case and what was done to reduce future risk, such as overhauling credentialing or background check processes.3 The inclusion of COVID data is also a must – insureds should report on operational procedures in place, provide the number of positive tests received, and confirm death rates.
Because markets have the capability to thoroughly analyze a wider variety of data than ever before, it’s vital that agents and brokers provide as much information as possible and verify that all data is current and accurate. Underwriters will view submissions under a microscope and be unwilling to consider narratives with partial or inaccurate information.
REACH OUT TO RESPECTED WHOLESALE PARTNERS
Across all segments, it’s much more difficult to place accounts, especially tough ones, because underwriters are inundated and don’t need them to fill capacity. Rather than taking a blanket approach, successful agents will narrow their focus to the right markets that are willing to listen to the insured’s story. CRC’s brokers are known for placing a large volume of business in these markets, maintaining thriving underwriting relationships, and making the most of proprietary tools and data to ensure that submissions aren’t overlooked.
It’s anticipated that the hard market will persist throughout the rest of 2021 and beyond, bringing with it lower capacity, higher rates, and tighter terms. In this environment, successfully finding solutions will require agents to tell the client’s story with transparency and accuracy. Agents will also need to expand their reach by partnering with E&S experts. In this market, an agent’s choice of broker can be the deciding factor in obtaining coverage or not getting any results at all. Simply having access to the markets means very little these days. Partnering with experts who are known for their healthcare expertise and capable of fully utilizing the markets is much more important. Contact your local CRC Group producer to discuss how we can help your clients overcome the challenges of a hardening healthcare marketplace.
- Jason Lewis is President of CRC Denver and National Healthcare Practice Leader for CRC Group. He specializes exclusively in Healthcare Liability, working with clients across the country to address a wide variety of healthcare risks facing physicians, LTC facilities, other medical facilities, correctional medicine, home health/staffing, and social service agencies.
- Truitt Taylor is a Senior Professional Liability Broker with CRC Group’s Birmingham, Alabama office, where he specializes in difficult to place professional liability placements including E&O and Management Liability.
- Tom Levin is a CRC Vice President and Healthcare Broker and a member of the ExecPro Practice Advisory Committee. He also leads the Chicago Healthcare Practice.
- Barbara Dawkins is a Vice President with CRC’s Woodland Hills office where she specializes in Medical Malpractice, Managed Care E&O, D&O, and Miscellaneous E&O.
- Bob Allen is President of Pro-Praxis Insurance, a full service Managing General Agency specializing in addressing the unique risks associated with the healthcare industry.
- Rusty Hughes is a Senior Broker with the Birmingham, Alabama office specializing in the healthcare and assisted/ senior living industries.
- Senior Living in a Post-Pandemic World, Insurance Journal, November 16, 2020. https://www.insurancejournal.com/magazines/mag-features/2020/11/16/590630.htm
- 39% of Covid-19 Deaths Have Occurred in Nursing Homes — Many Could Have Been Prevented: Report, NBC News, December 8, 2020. https://www.nbcnews.com/know-your-value/feature/39-covid-19-deaths-have-occurred-nursing-homes-many-could-ncna1250374
- Young E&S Professionals Face Toughest Market They Have Ever Seen, Insurance Journal, November 16, 2020. https://www.insurancejournal.com/magazines/mag-features/2020/11/16/590650.htm
- Medical Professional Liability Market Firms in 2020, Medical Professional Liability Association, 2020. https://www.mplassociation.org/Web/Publications/Inside_Medical_Liability/Issues/2020/Q1/Articles/Medical_professional_liability_market_firms.aspx