Key factors impacting medical professional liability coverage

Working with medical professional liability clients requires staying current with ever-evolving trends, especially as the pandemic has brought change after change to an already-firming market for senior care centers, individual healthcare providers, hospitals and other entities.

While the marketplace has become more challenging, new market entrants have arrived. This is a good sign, but it doesn’t necessarily mean that the market is improving. Rather, it suggests that it’s at the beginning of what is likely to be a long cyclical shift towards stability. There are signs that the ship is turning, but the firm market arrived slowly and is expected to end slowly.

As the market begins to course-correct, there are five key factors affecting medical professional liability placements that agents should discuss with clients.

No. 1: Premiums are still increasing

After several years of continued profitability pressures, premiums continue to increase. Carriers are still targeting 15%-25% rate increases, in addition to any exposure and potential step factor increases. Additionally, concerns over the frequency and severity of claims, as well as social inflation, have yet to abate.

The good news? Rate increases are expected to plateau in the next few years.

The bad news? That doesn’t mean premium decreases are on the horizon.

No. 2: Terms and conditions are changing

While it was previously a common practice, carriers are now reluctant to throw in “freebie” coverages. Former add-in coverages for cyber and ransomware are now potential loss drivers. While broad forms are still available, the robust policy forms of the past will continue to be pared down, and agents and brokers will need to find alternative ways to cover their clients’ needs.

No. 3: Carriers want clients to assume more risk

Guaranteed cost and first-dollar deductibles are not as common anymore. Carriers are not willing or able to carry the losses on their own. They want policyholders to share more of the risk through deductibles or retentions, especially in classes where there is increasing claim frequency, such as senior living facilities, surgery centers and urgent care facilities. This strategy leaves clients responsible for small, less complicated claims, while carriers focus on the larger, more punitive claims.

No. 4: Sexual abuse coverage is harder to obtain

Placing sexual abuse coverage has always been challenging, but it’s becoming even more difficult as carriers exclude it from excess policies and apply sub-limits on primary policies. As mega verdicts continue to break records, sexual abuse coverage may ultimately become uninsurable, and clients need to be prepared for this possibility.

No. 5: COVID and communicable disease exclusions are common

COVID-19 took the healthcare world by storm, and insurance companies had to adapt quickly to this new risk. Many carriers have been including COVID and communicable disease exclusionary language in their policy forms, although that is starting to ease in some areas.

Some insureds are seeking out insurers that don’t have a COVID exclusion in the policy, willing to pay the additional premium for the value of a policy that contains no exclusion.

Senior care demands special consideration

Senior living facilities represent a large segment of medical professional liability clientele. During the pandemic, owners struggled with decreased occupancy levels due to residents who died from COVID-19 and the hesitancy of potential new residents to move in. These days, however, many senior living facilities are housing just one resident per room rather than the typical double occupancy, so occupied room levels are back up. It will be interesting to watch the developing dynamic between how operators view their occupancy levels versus how they are viewed by insurance companies, who rate risk by either licensed beds (the amount that could potentially be filled) or occupancy levels (the amount actually filled).

The big picture

Here’s a rundown of where things stand across segments:

• In the senior care space, nearly every carrier is implementing a communicable disease exclusion. In some instances, this exclusion is General Liability only, and coverage still exists on the Professional Liability form for COVID-related medical negligence that results in bodily injury.
• In the hospital space, some carriers are comfortable insuring facilities without any COVID exclusionary language. On the other hand, some carriers use these exclusions as underwriting tools, showing quotes with and without the COVID exclusionary language, demonstrating value (in premium dollars) tied to a COVID exclusion.
• In allied healthcare, for the most part, carriers do not feel the need to include COVID exclusionary language. Some carriers are even comfortable writing COVID testing and/or vaccine sites without exclusionary language, as they understand that the exposure is limited for these medical procedures. Medical negligence would be covered under the Professional Liability policy, but the risk of a bad outcome as a result of professional negligence appears to be minimal. In addition, some carriers are becoming more comfortable with the Public Readiness and Emergency Preparedness (PREP) Act and other immunities.

As the market continues its sea change towards stability, agent and broker education is key. Understanding the developments shaping the medical professional liability market allows agents and brokers to clearly communicate and set expectations with their healthcare clients. Sharing why premiums are rising or why something is excluded can help clients feel involved in the process, and in turn, strengthen the broker-client relationship.

James McNitt (James_McNitt@rpsins.com) is area president with the Healthcare Practice of Risk Placement Services. He oversees the medical professional liability specialty niche, focusing on placements for hospitals, long-term care facilities, social services, non-emergency medical transport, allied healthcare and physician groups.

See also:

• NAIC names leading 15 medical professional liability carriers
• Professional liability risk considerations in telemedicine
• Hard market trends: What D&O insurance brokers should know