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Health and Social Care insurance market update

By Benita Greenway and Claire Prosser | August 23, 2023

Find smarter ways to position your risk to markets through the latest insights on multiple insurance lines, including medical malpractice, property, D&O, cyber and liability.
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How could your organization use specialist insight from WTW’s Health and Social Care Insurance Market Update to get more value from your insurance spend?

While competition, capacity and greater insurer appetite have returned in 2023 for well-established, low claim frequency risks within the health and social care sector, our market report offers an extra level of detail, giving you clarity around the latest insurer and underwriter expectations.

We offer specialist market insight and suggest ways your health and social care organization can position multiple lines of risk more compellingly in today’s market.

Market conditions steadied further in H1 2023, with a continued tapering-off of the rate increases that peaked in Q4 2020.

Overall, competition, capacity and greater insurer appetite has returned for well-run risks.

Although insurers have demonstrated improved reported underlying earnings, they face considerable volatility from inflation and cost concerns, coupled with commodities and supply chain constraints. Furthermore, higher market interest rates are impacting asset valuations and cost of capital.

Several factors contributed to what we might describe as this new ’apprehensive equilibrium’, not least the Ukraine crisis, global inflation, energy costs, plus a renewed focus on environmental, social and governance (ESG) and the deterioration of the 2022 loss record.

There is a definite thirst to re-engage from brokers, clients, and insurers, with in-person meetings helping position our clients’ risk compellingly to the market.

While the ability to evidence robust ESG standards does not impact how ratings are calculated directly, typically those clients engaging with ESG at an organizational level tend to have an equally proactive approach to the rest of their risk management style. This means insurers are interested in using these indicators to differentiate risk profiles and where they should put their capacity.

We anticipate premium increases will continue to moderate further during 2023, despite the potential challenges and continued uncertainty.

Property and business interruption

Given the premium rates (‘rates’) increases of 2020 and 2021, insurer profitability has improved, and market hardening slowed throughout 2022 and into H1 2023. Insurers are still tasked with moving rates forward, but competition has returned and for good-performing, well-managed, low-claims risks, organisations can now achieve rate reductions. Average rates are flat to +5%.

Competition and capacity for health and social care risks is returning and we are seeing rate reductions for well-run, good-performing risks. For risks the markets consider less desirable, competition and capacity were still difficult to generate.

Long-term agreements are once again available and insurer discounts for higher deductibles are back in appetite.

Economic conditions – in particular the sharp increase in inflation and commodity prices – have led to a focus by insurers and brokers on the adequacy of insured values. Replacement cost valuations for assets are coming under increased scrutiny due to significant increases in building materials and transportation/labour costs. It is essential health and social care providers show a robust approach to building valuation and increase sums insured by an adequate amount to avoid underinsurance following a claim. Inflation may also put pressure on the adequacy of current loss limits.

A detailed business interruption review is fundamental to bringing challenge and giving confidence in the adequacy of your policy loss limits.

Clearly and concisely articulating your approach to risk management remains a focus and continues to be essential in differentiating your business, along with the quality of broker marketing submissions and clarity of placement strategy.

Liability

Competition has returned to the market, and we are seeing willingness to quote business by a wider number of insurers. Average rate increases are flat to +2.5%. For good, well-performing risks, (those able to evidence how risk management is embedded throughout the organisation and where claims frequency is low), we are also seeing rate reductions. Claims performance and evidence of robust defensibility remain key.

Claims and social inflation (the rising costs of insurance claims above and beyond the overall inflation rate) is still a key concern for insurers, being the main reason cited when underwriters quote with rate increases on well-performing risks. Poor claims experience will still lead to higher increases. Providing risk management information to support claims performance is essential to your organization achieving the best results.

There remain limited markets for ‘implant risk’, which is breach of duty in the manufacture, modification or mixing of a product or good used in the provision of healthcare treatment, although brokers continue to try to generate appetite with new markets.

Insurers continue to take different approaches to abuse coverage, and health and social care providers need to carefully examine their wording to ensure their policy will perform as expected in the event of a claim.

There is some appetite for mono-line placements as well as multi-line deals, with property damage and combined employers’, public/products liability and medical malpractice becoming more common.

There is some uncertainty on the horizon with regards to U.S. exposures.

An increase in both frequency and severity of class-action claims, as well as so-called ‘nuclear awards’ (awards that are both hard to predict and of significant size) have impacted insurers.

Any renewal with significant U.S. exposure is likely to come under a great deal of scrutiny with significant rate movement, for the U.S. exposure, to be expected. This will also impact U.S. coverage attachment points, such as excess auto. The need for U.S. jurisdiction would limit some U.K. insurers’ ability to offer terms.

Motor fleet

Claims inflation, labour costs and time to settle impacting on hire car charges are all leading to increasing costs and lower profitability for insurers in 2023, driving premium increases. This is the case, even for fleets with a positive claims experience. Flat rates at renewal are now rare.

It is still too early to know if the U.K. regulatory reforms around bodily injury designed to reduce costs have had an impact on reducing both fraudulent claims and the costs associated with genuine claims.

Supply chain issues are impacting the availability of new vehicles, courtesy cars and driving up the second-hand market costs. The weakening pound has increased pricing of parts and we have seen an increase in theft of car parts. New technology found in vehicles is more expensive to repair.

Claims cleansing and effective risk management are vital to your organization achieving best terms.

Electric vehicles have become increasingly prevalent, with this trend set to continue in 2023. These can pose challenges due the lack of repairers that causes delays, as well as the increased fire risk from damaged batteries. Insurers are willing to accommodate but often at increased terms or excesses.

Some insurers are seeking to impose cyber exclusions in relation to vehicle technology. The principal impact of this is to remove own damage and third-party property damage due to a cyber incident. The drafting of these clauses is giving cause for concern meaning you need to examine these in detail. Our National Technical Practice team is reviewing and challenging these clauses, so we’re able to inform you of the impact of these for each insurer.

Claims inflation rates of around 10% for both injury and damage settlements are driving rates. While there is always appetite to underwrite well-performing or significantly sized fleets, many insurers have gone on record as wanting substantial increases in rating in 2023. The average rate increase in H1 was +7% but some insurers are seeking +10 to +15% in H2, depending on claims experience.

Medical malpractice

Competition and capacity remain consistent, although concerns relating to claims and social inflation abound.

The quality of your submission is key, and insurers continue to scrutinize staffing levels with concern over strikes and resultant quality of care.

There is pressure to increase deductible/excess levels and abuse coverage is extremely limited and, in some cases, unavailable.

Insurers await the final outcome of the U.K. Government’s Paterson Inquiry report which will determine if current doctors’ discretionary cover will end and separate cover will be required to be sourced by doctors or healthcare entities to cover both NHS and private work. The market has already responded with medical defence organizations setting-up commercial insurance products for future use if necessary, and brokers establishing alternative facilities.

However, whether these will see much take-up is uncertain until the outcome of the UK Government’s consultation.

For H2 2023, we anticipate accounts performing within expectation and backed with positive risk management stories could achieve flat rates to increases of up to 10%.

Directors’ and officers’ liability (D&O)

The hard market conditions of 2021 have softened in 2022 and we have seen significant improvements in the GB D&O market through H1 2023, with both capacity and competition returning.

Many clients have renewed at flat premiums, with some also achieving pricing reductions on excess layers. Insurers are offering increased capacity and more underwriting flexibility, with policy retentions being generally stable.

We have been working with clients to review the structures of their D&O programs and evaluate the adequacy of limits using our analytics capacities.

Providing detailed underwriting information around risk controls remains essential if you are looking to secure improved pricing.

Cyber

During H1 2023, the GB cyber insurance market continued its transition into a buyers’ market, with very strong competition from insurers on both primary and excess layers and a notable increase in the number of insurers competing for primary positions.

Most segments of the cyber market benefited from improved rates, pricing and the number of options available. Market conditions have also provided existing cyber insurance buyers with options to purchase increased policy limits.

Clients achieved material pricing reductions more frequently, with reductions of 10-30% becoming more commonplace. Self-insured retentions were more stable than they have been in the last 12-24 months and insurers have generally been willing to provide alternative lower options/structures.

Where clients have seen renewal savings, they are increasingly using these savings to purchase additional capacity and/or automatically reinstate the limit of indemnity.

Policy coverage, particularly war and infrastructure exclusions, in particular, are at the forefront of cyber reinsurers' discussions, but direct insurers are increasingly showing flexibility regarding such exclusions due to the competitive market conditions

A recent WTW Claims Insights report shows healthcare remains the number one sector for cyber notifications, driven predominantly by ransomware attacks and data/privacy breach.

Insurers continue to require confidence in health and social care providers’ stringent levels of security, management of risk and incident response preparedness.

Buyers who see pricing as a key consideration will need to navigate the market with a well-thought-out strategy to achieve best results, including factoring-in the amount of capacity they wish to purchase, as this may well impact the overall strategy.

Given the highly changeable claims trends throughout 2021, 2022 and into 2023, it feels prudent to expect the unexpected. This suggests existing cyber insurance buyers should continue to maximize the opportunities of a more favourable market to purchase additional limits whilst non-buyers should review the options available to put cyber insurance in place.

Further WTW H1 2023 perspectives

Crime cover capacity remains limited.

In terms of underwriting information requirements, there is a reduced focus on COVID-19 but, as noted in the introductory comments, an increased focus on ESG.

For specialist guidance on smarter ways to present your risk, get in touch.

*The percentages have been presented as rounded figures for ease.

All rate changes are for guidance only and vary depending on risk profile and individual circumstances.

Authors


Medical Malpractice Broking Director FINEX

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GB Health and Social Care Leader

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