The hard insurance market is leading to major changes in the insurance policies offered to health care providers, says William McDonough, MPAH, ARM, FASHRM, segment leader-manager for health care and senior vice president and national practice leader for Marsh, a major insurance broker in New York City. Carriers generally are offering less and charging an arm and a leg if you want higher limits, he says.
McDonough says you can expect to see these trends in malpractice insurance:
- Restrictions on capacity: Primary carriers still committed to the health care industry remain wary and have reduced how much they are willing to expose themselves to any one risk. In some cases, the insurers are halving previous maximums, or even worse.
- Reinsurance: Due to the lag time in reporting of claims, which can be three years or more, reinsurers now are being hit severely for losses from past years. In response, most reinsurers are cutting back on limits and have substantially increased prices.
- Claims reporting: Specific conditions are being imposed on the reporting of excess losses and potential excess losses. Settlement offers that may affect excess carriers need to be reported in a detailed fashion to ensure that no conflicts arise from late notice.
- Tail/extended reporting period (ERP) provisions: Many policies had specific provisions for options that would extend reporting periods. When triggered, these provisions allowed clients to evaluate the financial ramifications of tail options at a fixed cost while locking into place a self-insured retention on all incurred-but-not-reported losses. Now, McDonough says, most carriers either refuse to commit to a predetermined cost for ERP or establish parameters that protect them with a lesser benefit to insureds.
- Terrorism exclusions: Many January 2002 renewals contained new policy language on terrorism. The language is not industry-specific, which raises questions about applying it to health care clients even though it has been approved by the National Association of Insurance Commissioners.
- Increased deductible levels and self-insured retentions: Very few accounts with first-dollar coverage still exist. In many cases, deductibles are increasing so much that they are being converted to self-insured retentions, which carriers prefer as a matter or risk sharing.
- Collateralization for retentions: Carriers are becoming more stringent in requiring collateralization for even small retentions at levels close to the aggregate retention amount. Required levels of collateralization also are rising.
- Shorter ERP term for long-term care: ERP provisions are generally not given at policy inception anymore, and terms of only one or two years have become standard in long-term care.
- Limited coverages, reduced limits, and higher deductibles in long-term care: Carriers often are unwilling to negotiate coverage terms for long-term care, adhering strictly to their own forms and conditions. The punitive damages exclusion usually is mandatory, and coverage for sexual abuse or molestation is usually difficult to obtain. Most carriers are not offering per-location limits in long-term care, moving more toward aggregated limits and unaggregated deductibles.
Many carriers now have long-term care minimum deductibles of at least $25,000, and they will offer quotes for deductibles as high as $500,000.