As the healthcare sector moves further away from the disruptions caused by the COVID-19 pandemic, the management liability insurance market is experiencing significant changes.
Sarah Roberts, management liability account executive at Brown & Riding, describes how the early days of the pandemic saw insurers adopting stringent measures, including higher premiums, increased retentions, and scaled-back coverages.
However, the onset of 2023 marked a turning point, with carriers cautiously implementing modest renewal increases of about 5-10%. By the second quarter of 2023, the market witnessed a rapid shift from hard to soft conditions, characterized by an influx of capacity and heightened competition among insurers.
“Appetites rapidly changed,” Roberts said. “Carriers that had moratoriums on certain classes of business during the pandemic, like senior aging services, started considering those risks again. This increased competition forced management liability carriers to be as aggressive as possible to retain their own renewals and/or compete for new business.”
Roberts highlighted how Beazley has expressed concerns regarding investigations by state and federal agencies into the disbursement and billing of COVID-19 funds. The non-standard nature of this billing process raises the potential for errors, heightening the risk of regulatory scrutiny, it was suggested.
“The ad hoc nature in which this funding was made available and billed for was very different from the highly organized and codified system under which health systems typically bill,” she said. “That creates a heightened chance of errors being made through the billing process.”
Meanwhile, the sector is witnessing social inflation in claim settlements outpacing general inflation, with rising defense costs and increasing settlements from lawsuits brought by highly compensated plaintiffs. Merger and acquisition activity in the healthcare sector surged in 2022-2023, setting records for the number of transactions in the senior care and living spaces.
“According to LevinPro LTC, ‘The United States set a record in 2022 for the highest number of senior care and living transactions in a single year. There was a total of 527 transactions in 2022, an increase of 17% compared over 2021,” Roberts explained. “Skilled nursing deals overall represented just 41% of the year’s transactions.”
The executive order issued by President Biden in July 2021 to promote competition in the American economy has increased the focus on healthcare mergers and acquisitions, Roberts added, raising the specter of antitrust litigation.
“Among other things, it orders the Department of Justice and Federal Trade Commission to look at differences in the pre- and post-acquisition healthcare costs for mergers and acquisitions (vertical and horizontal). Increased scrutiny leads to higher risk of antitrust litigation, which can be costly for insureds and carriers,” she said.
The period from 2021 to 2023 also saw a notable rise in COVID-19 related claims, including those related to vaccination mandates and safety protocols. Roberts says that insurers have responded by adjusting retentions for medical practitioners and high wage earners.
“There has been a rise in claims brought by medical practitioners and high wage earners, which is why it has become increasingly common for carriers to utilize separate retentions for these employees,” she said. “Typically, the retention ranges from $100k-$250k. Compensation thresholds vary but can be negotiated.”
In the end, Roberts noted that despite the competitive push to lower prices, choosing the least expensive option may not always be the best course of action for insureds. The ever-evolving complexities and nuanced nature of healthcare risks necessitate a careful and sustainable approach to writing these accounts.
“Competition may drive pricing down, which is certainly a welcome relief for insureds, but going with the lowest priced option is not always the best solution,” she said. “There is optimism that the market is finally stabilizing, but we anticipate that diligent marketing efforts will continue to be requested in 2024.”
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