The healthcare management liability market has seen a dramatic shift as we get further away from the COVID-19 pandemic. Higher premiums, higher retentions, and reduced coverages were all too common during 2020-2022. At the beginning of 2023, healthcare carriers continued to take a cautious approach, pushing modest ~5-10% increases on their renewals. By Q2 2023, we saw a rapid transition from a hard to a soft market. Characterized by more capacity and increased competition, brokers were left with no choice but to conduct full marketing efforts on nearly every account. Appetites rapidly changed. 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.
With the new year in full swing, healthcare carriers are keeping a close eye on conditions and trends within the space including:
- Increased regulatory oversight: Beazley points to concerns surrounding state and federal agencies investigating the disbursement / billing of COVID funds through the CARES Act, FEMA, state specific sources, etc. 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. That creates a heightened chance of errors being made through the billing process.
- Social and economic inflation: Social inflation on claim settlements is outpacing the already high rate of general inflation. Defense costs are rising. Steadily increasing settlements from lawsuits brought by highly compensated plaintiffs is also trending.
- Consolidation: There has been a rise in merger and acquisition activity in 2022-2023. 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. Skilled nursing deals overall represented just 41% of the year’s transactions.”
- Antitrust exposures: On July 9th, 2021, President Joe Biden issued Executive Order 14036, “Promoting Competition in the American Economy.” 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.
- Claims frequency and severity: COVID-19 related claims, like vaccination requirements and safety / PPE issues were a cause for concern in 2021-2023. As noted above, 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. Typically, the retention ranges from $100k-$250k. Compensation thresholds vary but can be negotiated.
No matter the size, healthcare risks will always be perceived as more challenging due to the ever-changing complexities and highly nuanced nature of the landscape. Carriers will need to monitor rates and coverage to ensure that these accounts are being written on a long-term and sustainable basis. Keep that in mind as we see more underwriters competing for these accounts aggressively this year. 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. There is optimism that the market is finally stabilizing, but we anticipate that diligent marketing efforts will continue to be requested in 2024.
Authors
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Washington
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Management & Professional Liability
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