As the July 1 renewal season approaches, U.S. hospitals are facing a challenging period in securing liability insurance. Experts warn that this year could bring one of the toughest cycles in recent memory, with significant changes expected in coverage options and costs.
James McNitt, the healthcare practice leader at RPS, highlighted that hospitals will experience a major crunch in capacity. Insurers are struggling with ongoing unprofitability, leading to new exclusions in policies and a significant shift in how coverage is provided. McNitt described the situation as a "pain train," indicating that the market is reacting strongly for the first time in years.
July 1 is an important date for many large hospital systems as they renew their insurance policies. McNitt noted that the market will tighten dramatically, with fewer options available and increased scrutiny from insurers. This tightening is already evident, with exclusions being applied to high-risk areas, such as sexual abuse claims, and gaps in coverage becoming more common.
Long-standing insurance providers are withdrawing from certain layers of coverage, forcing brokers to find alternative solutions for gaps that can amount to millions. This means more negotiations and potential disruptions in the insurance market.
The healthcare liability segment has long faced challenges, with many of the top carriers reporting losses over the past decade. McNitt pointed out that some hospital programs are running loss ratios above 100%, which is not sustainable for insurers.
A significant factor in these losses is the rise of "nuclear verdicts," which are court awards exceeding $10 million. These verdicts have become more frequent in hospital settings, with some juries issuing decisions that can financially cripple individual hospitals or entire systems. Additionally, batch claims, which involve coordinated lawsuits from multiple plaintiffs, are becoming a growing concern, often driven by aggressive advertising from plaintiff attorneys.
To manage these risks, some insurers are requiring hospitals to maintain higher self-insured retentions for batch claims. While this approach is not new, it is becoming more common as insurers seek to mitigate their exposure to large claims.
Despite the difficulties faced by hospitals, other sectors within healthcare, such as outpatient clinics and pharmacies, are experiencing more stable conditions. These areas attract competition among insurers and deal with less severe claims, keeping loss ratios manageable.
As hospitals prepare for this challenging renewal season, brokers and insurers have limited strategies to cope with the turmoil. One approach is to accept larger self-insured retentions, which can encourage insurers to provide coverage at higher levels. However, this also increases the financial risk for hospitals.
Looking ahead, McNitt warned that the contraction in the healthcare insurance market may extend beyond hospitals to include related sectors like senior living and social services. The current market is characterized by a slow but steady decline, differing from past cycles that saw sharp swings between profitability and losses.
In this strained environment, brokers must help clients understand their risks and options. Early engagement and clear communication will be crucial in navigating the complexities of this insurance landscape.