It’s been a buyer’s market for healthcare liability insurance for the past decade or so. Hospitals and health systems have consistently enjoyed broad terms and conditions and declining or steady rates.
But a convergence of factors is ushering in a firming market, and risk managers should know what to expect.
“It’s time to prepare for an adjustment in the marketplace,” said Tyler Coleman, Senior Vice President and Head of Healthcare North America at Swiss Re Corporate Solutions. “Times are changing relative to what buyers have been accustomed to, which is year-over-year rate decreases and broad terms. And when things do change, they change abruptly.”
Increasing exposures, rising loss severity and reduction of capacity are some of the trends that are hitting the market.
Conventional wisdom dictates that losses tend to be either high-frequency and low-severity or vice-versa. But medical malpractice claims are bucking that trend. A greater proportion of these claims are incurring severe losses, and that severity continues to climb.
Medical cost inflation contributes to rising claims costs, but those increases have been compounded by record-breaking jury verdicts. More and more, juries tend to take the side of plaintiffs who have suffered injury over large corporations, who they perceive to have significant resources.
“There’s been a change in the jury pool’s expectation of what the outcome of a given procedure should be,” Coleman said. “When plaintiffs don’t get that outcome, jurors see it as an injustice, regardless of the facts of the case.”
Some plaintiffs’ attorneys have also accelerated this trend by devoting themselves exclusively to high-severity claims.
“We’ve seen emerge a class of prosecuting attorneys with the experience and economic resources to drive larger verdicts,” Coleman said. Big awards in high-risk venues are driving up average loss values nationwide.
Healthcare systems’ risk profiles look very different today than they did prior to the passing of the Affordable Care Act. Hospital consolidation and the employment of once-independent physicians — driven by ACA incentives to eliminate costs and duplication of care — create greater professional liability exposure for health care organizations.
“Historically, physicians by and large were not a part of hospitals’ insurance programs. They were separately insured,” Coleman said. “But by employing these physicians, hospitals take on that exposure. Today, about 40 percent of physicians practice independently; that figure used to be 80 percent. So the exposure growth is significant.”
Increased exposure also comes from a larger patient population spanning wider geographies, and a shortage of doctors available to treat them. As people live longer and the population ages, healthcare utilization goes up. Meanwhile, fewer people are choosing to become doctors.
Stretched to capacity, existing physicians are more vulnerable to fatigue and error.
The confluence of elevated risk profiles and larger losses has forced carriers to re-evaluate their stance in the healthcare liability market.
“We’ve seen markets pull back in a variety of fashions, either completely exiting lines of business or re-underwriting their portfolio, reconsidering the amount of capacity they are willing to expose, and what rate they want to achieve,” Coleman said.
Unexpected larger losses drive reserve deficiency – a reversal of a years-long trend wherein healthcare liability insurers typically enjoyed reserve redundancy.
“As the allocation of third-party capital increased in the property market over the past decade, (re)insurers redeployed their capital into casualty lines of business,” Coleman said. “Now that significant losses are developing, insurers are seeing very low or negative ROE’s that appear not to be sustainable, which may lead to a greater reduction of capacity.”
“Increasing loss values and greater exposures have certainly driven some of the decisions being made market-wide in terms of managing net capacity, attachment points and premiums,” Coleman said.
What can risk managers do to prepare?
“I would be very aware of the financial strength and diversity of my insurer, understand their commitment to and expertise in this line of business, and focusing on forging long-term relationships with them,” Coleman said.
“You want an insurer who is willing to work with you and has the capability to offer stability in terms, conditions and pricing.”
Swiss Re Corporate Solutions has been committed to the healthcare industry for over 25 years, providing healthcare’s signature liability protection, medical malpractice insurance.
“There has not been a time when we exited this line of business,” Coleman said.
Corporate Solutions rounds out its product offering with risk engineering and claims expertise. The Corporate Solutions risk engineering experts continually share risk avoidance guidelines and strategies through multiple formats that include webinars, focused risk analysis with tailor-made recommendations to mitigate liability exposure, and research on specific subject matter, case law and/or regulatory issues. They also can provide healthcare risk management educational presentations and staff training.
Governed by the Swiss Re Corporate Solutions’ Claims Commitment, dedicated industry in-house claims professionals — who understand that how a claim is handled can be as important as the outcome itself — work closely with clients throughout the claim lifecycle.
“And of course we ensure that policies are issued and claims are responded to in a timely manner,” Coleman said. “After all, what we’re selling is the promise to pay a claim.” With an AA- rating from Standard & Poor’s, an A+ rating from A.M. Best and an Aa3 rating from Moody’s, clients can trust in the insurer’s ability to deliver on that promise.
“In Swiss Re Corporate Solutions, our clients have a carrier willing to stay by their side in a consistent manner after a big loss — which everyone experiences eventually — and then help mitigate that loss going forward,” Coleman said.
To learn more, visit http://www.corporatesolutions.swissre.com.
Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solutions. This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Swiss Re Corporate Solutions. The editorial staff of Risk & Insurance had no role in its preparation.
Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.
Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.
Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.
“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.
And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.
“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.
As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.
“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”
Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.
“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.
“A lightning strike can trash every electronic in the home.”
A variety of niche service providers are stepping forward to help.
Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.
Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.
“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.
“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners
Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.
Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.
All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.
“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.
Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.
“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”
Another important component is knowing who will execute that plan in homes that are often unoccupied.
Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.
Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.
AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.
“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”
Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”
Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.
Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.
“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore
“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.
“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”
Poux cites a remote ranch property in Texas.
“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”
Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.
“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”
Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.
A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.
Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.
“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.
“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”
In the wake of disaster, even basic services can be scarce.
“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”
And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.
“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &