What does a hard insurance market mean for health and care businesses?

There has been a lot of media discussion recently about the insurance marketplace potentially hardening, and you may wonder what this means, and how it will affect you when it comes to renewing your insurance policy? And, more to the point, how will our health and care team assist you during these testing times?

If you attended our recent challenging market webinar, you will have some background and understanding on the state of the market, and steps we can take together to mitigate its impact. In brief, a hard insurance market is characterised by a high demand for insurance coverage, and a reduced supply. Insurers impose strict underwriting standards and issue a limited number of policies. Premiums are high and insurers are disinclined to negotiate terms¹. A hard market will only soften when new capital is injected into the market ‒ this is usually done by new market entrants. However, these days it’s rare for new insurance companies to start-up and get past all the regulation and security ratings, therefore don’t expect to see new capital entering for a long period of time².

In a soft market, many insurers compete for business so premiums are generally low. To win business, insurers relax their underwriting standards and cover is widely available. Brokers like Marsh Commercial find insurers flexible, and willing to negotiate terms. The market is now becoming more challenging, with the pandemic accelerating the rate of change.

What causes the market to change?

According to Covéa Insurance, the following factors are contributing to the changes we’re seeing in the market today².

The reinsurance market
Falling profits and deteriorating loss ratios has had a marked impact on insurers across the board. The result of this poor performance is the cost of reinsurance has increased, resulting in premiums increasing. Unfortunately, we haven’t seen the end of these increases as the result of the Covid-19 test case may jeopardise (re)insurance solvency.

Brexit
In leaving the European Union, businesses expect an increased lead-time for materials, machinery and equipment which creates increased costs; and delays in reinstating buildings and machinery from abroad.

Reduced capacity
Last year saw a number of insurers exit the market, MS Amlin, Tokio Marine, Aspen to name a few. This puts added pressure on existing capacity and resources. Throughout 2020, the global pandemic has continued to squeeze capacity with more insurers exiting this space altogether³.

The unknown impact of COVID-19
The broader economic assessment of the impact of COVID-19 estimates to cost $107 billion, combine that with the estimated loss of investment income of $96 billion ‒ the total bill is estimated to cost $203 billion (calculated in dollars as reinsurers include US losses).

Recessionary behaviours
Spikes in theft and malicious damage losses are common trends during recessionary times. The propensity for individuals to inflict damage within society increase, and claims can also increase as the general public look to find ways of increasing their income in uncertain times. In addition, employers liability claims and claims companies tend to appear, and drive claims volumes and investigation costs up.

What should health and care providers expect at renewal?

Health and care businesses who have found their premiums have increased at renewal can attribute this increase to a number of factors:

• The market has changed and appetite for writing care insurance from insurers and reinsurers is decreasing. If your business has poor claims or CQC rating, this will cause your premiums to increase or could even impact your ability to obtain cover.
• Property insurance is directly affected by the weak pound inflating cost of building materials.
• The cost of labour has increased, driven by changes such as increased cost of living in the UK, an ageing workforce and reduced supply.
• Health and care businesses often have specialist equipment and machinery from overseas. Brexit creates international trade challenges/unknowns, which drives the cost of these claims up.
• Many healthcare surgeries or care facilities have complex plumbing, with multiple employees needing access to water for basins, hoses and specialist equipment. This heightens the likelihood of plumbing challenges and subsequent claims.
• Climate change makes hot and dry summers more common, increasing subsidence losses. We’re also seeing more frequent and severe weather events.
• Escape of water continues to plague the industry at an annual estimated cost of £950 million.

Why are the cost of liability claims rising?

The cost of liability claims may vary year on year but cumulatively the cost of claims has risen faster than general inflation particularly on liability claims. Judicial College Guidelines for Assessment of General Damages set new rates from April 2020 that were 7% higher than the previous edition. (2017) Inflation in the same period was 5%. These, of course, have compounded over the years.

New and expensive liability claims have emerged, for example:

• Abuse and bullying.
• Mental anguish and shock.
• Various forms of discrimination.

As society becomes more litigious and claims companies appear, there are more claims registered for potential liability which increases costs – both for claims and investigation/defence costs. In addition, claims in respect of vulnerable clients in the care industry may be heightened, in both volumes and quantum. The environment with COVID-19 demonstrates that there are further considerations to be made for their safety and protection².

What you can do to secure the best insurance solution for your business

Insurers will be looking for risks that have an investment in risk management with a proactive approach.

• Start the renewal process early, insurers are going to be scrutinising each risk more closely especially the higher risk trades.
• Be ready to provide more information. This will demonstrate you have a focus on risk management and will make your risk more attractive to underwriters.
• Prepare to see reduced cover limits and/or cover withdrawals as insurers look de-risk some of their exposure.
• Demonstrate that your sums insured are correct, under-insurance is a huge problem in the industry.
• Ask your broker to make sure your claims history is up-to-date and any historical claims have been closed off.
• Prepare for increased scrutiny on CQC inspections, and longer questionnaires to see how well you are adhering to government guidelines. If the CQC has flagged areas for improvement, ensure you have comprehensive action plans to share.

^Sources:

^{1 Thebalancemb.com}

^{2 Covéa insurance}

^{3 AJG.com}