Between continued implementation of the Affordable Care Act and the introduction of ICD-10 medical billing codes, 2015 was a year of significant change in the healthcare insurance landscape. The overall market trends continue to be positive in many lines of coverage, but issues surrounding electronic medical records, ICD-10 coding, and the ever-changing regulatory landscape have created additional uncertainty in the marketplace.
Now a couple months into 2016, let’s take a look at trends and changes in six specific areas of healthcare insurance: Professional Liability, Executive Risk, Cyber & Data Security, Billing Errors and Omissions, Managed Care Errors and Omissions, and Workers’ Compensation.
The marketplace for Professional Liability continues to trend favorably in terms of frequency, but severity is on the rise at a similar rate. Overall, the increase in severity and decrease in frequency offset each other, creating a generally stable and highly competitive marketplace. Insureds can anticipate rates remaining flat or seeing as much as a 5% decrease.
Carrier loss experience across the healthcare industry has continued to deteriorate over the past few years due to a prolonged soft market with declining prices that have more than outpaced the gains in overall loss rates. In spite of this, many carriers continue to report profits and most are still pricing aggressively. On the other hand, some carriers have started to show signs of decline in profitability and are beginning to look at eliminating dividends and tightening guidelines to help stem losses. If other carriers’ loss experience deteriorates in a similar manner, it could lead to market-wide rate increases, but for now it’s limited to a small portion of the market.
2016 Takeaway: Carriers continue to price new business aggressively, and high performing renewal accounts are still seeing rate reductions. Watch out for continued deterioration in carrier loss ratios that could cause premium increases across the market.
Employment Practices Liability (EPL) is the current hot item, as rates continue to rise in places like California due to an increase in both frequency and severity of claims. Most carriers are adding significant physician or medical professional retentions in addition to increasing premiums, which means that clients are paying more for coverage and also paying much more out of pocket for each claim. This is making many of our clients look more closely at their risk strategy.
New legislation taking effect in 2016 continues to tighten requirements for wage and hour standards. We recommend taking a close look at practices and procedures in this area to ensure compliance with these new requirements. In California, most carriers will not provide coverage for this exposure other than a small sublimit for defense, so maintaining compliance must become an integral part of every business’ risk mitigation strategy.
On the other hand, we are seeing the Directors & Officers (D&O) market remain a bit more stable, with clients receiving more modest rate increases of 5% to 15% and only receiving increased retentions if there is anticipated merger & acquisition activity.
2016 Takeaway: EPL is a premium driver among the executive lines. Be sure to implement tight controls and explain your human resources practices and any other factors that differentiate your risk profile to your insurance broker so they can help mitigate premium and retention increases.
Cyber & Data Security
Cyber & Data Security is still top of mind, and while more companies are buying coverage and existing buyers are increasing limits, less than one in four of our healthcare clients have a standalone cyber-liability policy. This is surprising as the healthcare industry is the number one target for cyber criminals and continues to lead the way in terms of number of records lost, number of incidents and total cost of a breach.
Because of the tight government regulation around protected health information, awareness among our healthcare clients is fairly high. However, we have found that actual preparedness to prevent and handle breaches is low across the industry and limits purchased are often not adequate.
2016 Takeaway: Cyber-attacks and data breaches are only increasing in severity over time, and healthcare is the primary target, so it is crucial to obtain adequate coverage and implement strong risk management strategies to protect your business.
Billing Errors & Omissions
There has been one significant development in the Billing Errors & Omissions line of coverage: the implementation of ICD-10 coding. On October 1, 2015, the number of codes used increased from around 14,000 to over 70,000. With so many more codes, billing procedures are more complex and healthcare companies have more exposure to errors. Luckily, the market for this coverage continues to be fairly stable, and most of our clients with good loss experience are obtaining renewal changes of flat to a 5% decrease.
2016 Takeaway: Even with the implementation of ICD-10, the Billing E&O marketplace continues to be fairly stable. The best way to ensure this continues is to implement a good system of quality control checks and balances to avoid errors that could lead to claims.
Managed Care Errors & Omissions
The marketplace for Managed Care E&O continues to be very challenging, as losses have increased substantially over the past couple of years and there are few carriers willing to write this coverage due to the complexity of the different exposures involved. Our clients continue to see increases in both rates and retentions, and some carriers are not renewing entire books of E&O business with this coverage in states that have been problematic, like California.
2016 Takeaway: Budget ahead for rate increases and higher retention payments in 2016.
SB863, which passed in Sept of 2012, has been a mixed bag for our workers’ compensation system. On the positive side, the bill has created $770 million in savings thus far due to reduced medical costs and a lower number of liens. Nevertheless, the number of Independent Medical Reviews, which were designed to resolve disputes, has been three times higher than expected, increasing costs and delaying claims.
In 2016, experience modification (Ex-Mod) eligibility will be determined using expected loss rates instead of premium rates, which means you will get your Ex-Mod Factor sooner, so you can budget accordingly.
2016 Takeaway: For the first time in eight years, we are seeing workers’ compensation rate reductions at an average of 5% depending on industry and claims activity. Let’s hope this trend continues.
While the healthcare industry faces its share of challenges when it comes to managing risk, trends overall remain positive. With proactive analysis and attention to the realities of both the marketplace and the workplace, companies can continue to stay ahead of the curve and positively impact their bottom line.
Reach out to one of MMA's healthcare insurance experts for information or questions on any of these specialized coverages.