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Survey Report

Insurance Marketplace Realities 2021 Spring Update – Managed care E&O and D&O

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April 21, 2021

The market is hard: Significant rate increases, insistence on increased retentions, capacity problems and coverage restrictions.
Rate predictions
  Trend Range
Overall: Hard and changing rapidly
Blue plans: Increase (Purple triangle pointing up) +30% to +50% or more
Public managed care organizations: Increase (Purple triangle pointing up) +25% or more
All other managed care organizations: Increase (Purple triangle pointing up) +10% or more

Key takeaway

The market remains hard and in rapid flux. Rate increases may be starting to level out, but they are still significant, as is carrier insistence on retention increases, especially for antitrust and class action claims.

Capacity problems and coverage restrictions continue, and while the impact is being felt more by for-profit entities than non-profits, non-profit managed care organizations (MCOs) of significant size face similar challenges.

  • The hard market has extended to hybrid MCOs, provider-owned MCOs, and smaller entities as well as more traditional entities.
  • Carriers continue to segment their business between Blue plans, non-Blue plans and public companies.
  • Coverage restrictions are increasing, especially for Blue plans. Key coverage concerns include antitrust and cyber/third-party privacy claims. Political and regulatory uncertainty is adding further complexity to the marketplace.
  • Given the need for and use of reinsurance in this industry sector, it should be noted that reinsurance for managed care risks is similarly facing capacity limitations, coverage restrictions and rate increases. Reinsurance carriers also have increasingly serious issues with antitrust exposures, concerns that are no longer limited to Blue plans.
  • Systemic risk plagues MCOs, and managed care E&O and D&O carriers continue to assess their entire portfolios as they manage their capacity and exposure to aggregation risk.
  • The market continues to shrink, with two carriers recently announcing they are no longer accepting new managed care E&O business. These moves are especially disruptive since one historically wrote risks that no other market would consider.
  • Some good news: An excess carrier entered the market and is writing managed care E&O and D&O, including Blue plans.
  • No new offshore capacity has entered the market. Bermuda and London are high excess markets only. Domestic carriers and their offshore counterparts closely coordinate capacity.
  • Buyers can help themselves obtain the best possible terms by hosting carrier renewal meetings and providing submission materials well in advance of renewal dates. These materials should include complete claim information, membership breakdown by type of member, and a complete list of managed care core and non-core services. Individualized underwriting is key.
  • Analytics is another key in responding to the hard market. Broad and reliable analytics can support optimal selection of retentions, limits, captive use and alternative risk transfer options across the entire entity. While product line analytics can help an MCO employ the best program for a specific risk, entity-wide risk analytics can help build the most efficient program for the entity as a whole.
  • Alternative risk transfer solutions such as captives should be considered together with commercial market placements to achieve optimal efficiency, effectiveness and return on investment (ROI).

Buyers should be aware of claims scenarios that can create coverage problems.

  • Antitrust : Over the last 25+ years, the managed care industry has been involved in many antitrust claims. The current In Re BCBS Antitrust Litigation is but one example. Antitrust claims can take many forms, follow various legal theories and may be prosecuted in state, federal and foreign jurisdictions. They can be filed by members, providers, competitors and governments. They can be class actions, but many are not. They require specialized legal representation and are expensive to defend. The resulting losses are not always 100% covered. Coverage for these claims is tightening significantly.
  • Network security and privacy : Cyber risk is a top risk for every MCO. MCOs maintain large amounts of protected data on millions of members, send and receive billions of dollars monthly and collect biometric data. Efforts to obtain this information by foreign governments, criminal enterprises and other hackers are an everyday occurrence. Claims related to lost business income, ransomware payments, breach response expenses, and first- and third-party losses are all on the rise. While there is capacity in the marketplace, buyers must take note of coverage restrictions, the need to dovetail coverage terms with other lines, and the difficulty of determining proper limits.
  • Government fines and penalties : Because MCOs are so tied to government reimbursement, the likelihood is high that plans will be the subject of a government investigation, False Claims Act action, whistleblower lawsuit or administrative fine/penalty. Beyond restitution, damage awards, fines and penalties, defense costs alone can exhaust a risk transfer program. International regulatory compliance is another risk in countries (e.g., the UK, EU, India) where many MCOs now have business operations.

The market impact of COVID-19 is still unclear.

  • The impact of the pandemic and the ensuing economic downturn on this segment is still unclear after many months of healthcare management during the crisis. Most of the adverse impact will be financial: medical loss ratio, workers compensation and employee benefit claims as well as those related to remote work and return to office.
  • However, the pandemic itself is unlikely to have a significant impact on rates or coverage terms in the near future. The pandemic-related risks associated with managed care entities of all sizes and types are financial/first-party loss related. Such risks are not generally covered under managed care E&O policies. .

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Contacts

Kenneth White, J.D.
National Managed Care Practice Leader

Kathy Kunigiel
ARM, RPLU
Senior Managed Care E&O Placement Specialist

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