6 Critical COVID-19 Risks Facing the Health Care Industry

As the novel coronavirus spreads throughout the world, doctors, nurses and other medical professionals are on the front lines. Here's what industry experts have their eyes on to manage their risk exposure.

By: Emily Spennato | April 10, 2020

News coverage of COVID-19 and what it’s doing to our economy, schools and health care system has become so constant, it’s inescapable.

First, social media outlets sounded the alarm on scarce availability of testing kits, shortages of masks and now ventilators. Now, large buildings such as convention centers, schools and gymnasiums are being converted into temporary hospitals.

The impact that the novel coronavirus is having on the health care system is in fact exactly that: novel.

“The virus itself is something that no one has immunity to, and that’s why it’s called the ‘novel’ coronavirus,” said Gisele Norris, strategic account manager and co-leader of Aon’s global infectious disease task force. “No one has any existing immune response.”

As nurses, doctors and scientists put their lives on the line to help combat the growing pandemic, here’s what risks are at the top of mind for the health care industry.

1) Coverage Exclusions

As the volume of related claims rise, more insurers are writing exclusions in coverage, and organizations are racing to pinpoint their exposures.

“As our health care clients come up for renewal, we’re going to see certain restrictions or even exclusions for pandemic batch coverage,” explained Steve Kahl, managing director, Gallagher’s health care practice.

“Batch refers to how an insurance policy will respond to multiple related claims. If we lose that coverage, it could really impact the bottom line of our health care organizations and be detrimental.”

In response to concern over coverage exclusions, the federal government has written and is continuing to write some immunities into law, but it can vary by state.

“There’s the federal PREP Act that will provide some immunity, but of course, the extent of that immunity is difficult to gauge,” Norris said.

In the event that health care organizations can’t cover income that has been lost from cancellation of elective surgeries and other procedures, hospital balance sheets are threatened.

“If carriers are successful at issuing renewal exclusions for this event, there will be major client concerns about policy renewals,” she added.

2) Liability

Even in times of normalcy, liability is a concern for any organization. One can imagine how that risk would increase for health care organizations in a time of global pandemic.

Gisele Norris, strategic account manager, co-leader of global infectious disease task force, Aon

Industry experts may even argue that liability is the number one concern that COVID-19 presents to organizations, because in order to mitigate liability, employees must be properly cared for and protected.

“When we talk about health care, the first thing you think of is professional and general liability,” Norris explained.

“Professional and general liability could be affected by failure to diagnose, failure to utilize adequate infection control, and many other triggers that could result a bodily injury claim.”

To name one example, professional liability claims could come from doctors and nurses who are unknowingly infected and are treating patients in the absence of adequate personal protective equipment. A general liability claim could result if a child contracts the virus when enrolled in onsite childcare supplied by the hospital.

Workers’ compensation for those same physicians and nurses is also a major concern for health care organizations. According to Norris, an estimated 14% of COVID-19 cases in Italy are health care workers, which highlights just how extensive the exposure is.

“If an employee contracts COVID-19, and it spreads throughout the employee population?” asked Kahl. “Workers’ comp has to include communicable disease coverage extensions, and the injury would need to be compensable for coverage to apply subject to each states workers’ compensation laws.”

3) Financial Strain

From the rampant price gouging of what little personal protective equipment (PPE) is available to the cancellations and postponements of elective surgeries, hospitals and outpatient facilities are under incredible financial pressure in a time when they need the most resources.

“For hospitals that are in hot spot areas, elective procedures are down 50%. Outpatient procedures are down 80%. That’s a huge revenue loss,” explained Lorraine Lewis, executive vice president, Alliant.

“Most revenue that makes hospitals profitable is procedural based care; it’s not having … sick people hanging out there.”

From a business interruption perspective, organizations are grappling with how to cover losses and not only remain profitable but also remain open.

According to Lewis, due to other health care finance pressures, some hospitals have already been forced to close their doors or have been acquired by other organizations. There is concern that this trend will be greatly exacerbated due to the financial pressures resulting from COVID-19.

Lorraine Lewis, executive vice president, Alliant

“There’s a concern in impacted areas by nursing home operators due to the vulnerable nature of the residents they serve. The questions that being asked are, ‘How do we make our staff feel safe, how do we manage our labor costs, and how do we work through staffing issues if childcare isn’t available?’ ”

A lack of revenue, rationing of care and limited resources is ultimately a recipe that will impact the accessibility of high quality health care even after the pandemic is over.

“The media is focused on the lack of ventilators and bed surge, but I think the real concern is the long-term impact on high quality health care in the future. Having a strong economy is what allows us to have good health care and good medicine.”

4) Supply Chain Interruption

While the spread of the virus has certainly resulted in increased demand for personal protective equipment, interrupted supply chains are also part of the problem.

“A lot of PPE is made in China, so the fact that the Chinese outbreak was the first one is a little bit problematic,” Norris said. “Hospitals are going to need to work together and support each other as the virus moves.”

Especially in hot spot areas, government officials have been encouraging this type of support among health care organizations to offset an imbalance of resources as much as possible.

“I think the organizations that are doing the best job are the ones that have good risk management and good planning. Having a plan for infection control, making sure that, from a supply chain perspective, you’re not relying on one vendor is important,” said Lewis.

“Proper planning eliminates poor performance.”

5) Cyber

Cyber threats are often wrongly viewed as low risk, but when it comes to hospitals, the risk couldn’t be higher. The need to avoid privacy liability and HIPAA violations is always of utmost importance for these types of organizations, but the need is especially paramount in times of crisis.

As modeled in this Risk & Insurance® scenario, cyber attacks can affect functions as critical as life support machines.

Hackers are certainly taking advantage of the pandemonium, too. According to Norris, cyber criminals targeted Johns Hopkins during the COVID-19 crisis by duplicating their official virus tracking map. Malware was then loaded onto computers of those who tried to access the duplicated map.

The U.S. Department of Health and Human Services even experienced a cyber attack that attempted to slow down its operations during coronavirus response.

“Hospitals are understaffed and overworked and not paying attention, and then if you hit the hospital with an attack, like a ransomware attack, you’re going to debilitate an environment pretty heavily,” Karim Hijazi, CEO of Prevailion, a cyber intelligence company that infiltrates attacker networks, told Risk & Insurance® in March.

6) Fatigue

Despite their heroism, health care workers are mortal like the rest of it. Unrivaled circumstances are leaving them physically and mentally exhausted.

“Fatigue is certainly a factor among these providers, depending on what city they’re located in,” Kahl said.

“We’re seeing significant strain on our frontline resources, including our physician population, nursing population, any allied providers that are involved with supporting patient care and emergency preparedness.”

According to Kahl, the field is even seeing retired physicians donate their services to support doctors and nurses suffering exhaustion or who have perhaps contracted COVID-19 themselves.

Health care workers are also suffering the emotional fatigue that comes with a pandemic.

“When a provider deals with a patient passing away or has to talk to a distraught family, they take that burden home with them. We’ve had a process in place supporting Care for the Caregiver and are now updating it to deal with this pandemic,” Kahl said.

Kahl also noted that Gallagher is working with its Health Systems to support doctors dealing with patients who are isolated due to limited or restricted visitation regulations.

“Our doctors and nurses and scientists are on the front line,” said Lewis. “These people are making enormous sacrifices personally and professionally at their own risk, and I think that is glorious.” &

Emily Spennato is a former staff writer with Risk & Insurance.

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.