The dark days of the pandemic are finally easing for the healthcare industry, bringing back much-needed insurance capacity for Directors and Officers (D&O) and Employment Practices Liability Insurance (EPLI) coverage after underwriters effectively closed to new business or for renewals, dramatically restricted their terms, conditions and capacity limit two years ago.
Healthcare entities have always been highly exposed to contagion and disease outbreaks, but market fears and uncertainty about the impact of the COVID-19 pandemic on claims frequency and severity have dramatically changed the how underwriters have treated and priced risk over the past two years.
As of March 2020, COVID questionnaires on a healthcare organization’s COVID-19 protocols – including disease security and containment plans, and procedures to mitigate ongoing risk – were required for all health care requests. renewal and new business. These questionnaires were used as part of the underwriting process throughout 2020 and into 2021.
Some insurers have also begun adding “absolute communicable disease/COVID-19” exclusions to policies in an effort to prevent coverage of any developing pandemic-related claims trends.
Pricing, already impacted by social inflation, was also strongly affected, with D&O tariffs up by almost 20% on average at the end of 2020 and program pricing up by more than 28%.
Thankfully, the dreaded onslaught of COVID-related claim carriers has not materialized, in part due to the EPLI and D&O policy exclusions already in place. EPLI policies generally exclude claims related to OSHA or the Fair Labor Standards Act, including those alleging an unsafe work environment, failure to provide adequate safety equipment, or non-payment of vacation time. emergency illness or paid family leave. Under D&O policies, claims for bodily injury related to sickness, sickness or death are excluded.
Underwriters are watching closely for claims related to vaccination requirements, i.e. failure to properly offer and review medical and religious exemptions, leading to claims of discrimination and wrongful termination. To date, the Centers for Medicare & Medicaid Services (CMS) COVID-related regulations and requirements for healthcare organizations have been recognized to support healthcare management decisions.
Even though initial underwriter fears have subsided and questionnaires have subsided, the effect of the pandemic on the D&O and EPLI healthcare markets is far from over.
As this market looks to recover and move forward, underwriters are already watching and reacting to several issues that agents and brokers should be aware of.
CARES Act Funding Audits
More than $175 billion has been allocated to hospitals and healthcare providers throughout the pandemic through several initiatives passed by Congress and signed into law, including the CARES (Coronavirus Aid, Relief, and Economic Securities) Act, the Paycheck Protection Program and the Health Care Improvement Act. .
As is the case when providers receive government funding, CMS audits healthcare organizations to determine “whether providers who have received payment have complied with certain federal requirements, and terms and conditions of reporting and expense [Provider Relief Fund] funds.” In other words, CMS can start looking to see if healthcare organizations have committed fraud or abuse in their use of COVID aid.
The federal government has stepped up its investigations into health care fraud over the past 10 years or so, and for good reason. According to the National Conference of State Legislatures, fraud and abuse are widespread “in both public and private health care sectors,” accounting for about 3% to 10% of Medicaid payments.
Of course, outright fraud or abuse is excluded from D&O policies, but D&O coverage typically includes a sublimit for government action that supports the defense of such claims. Underwriters are closely monitoring the progress of CARES Act audits over the next few years and whether there is an increase in allegations of misuse or misuse of funds that creates additional exposure.
and potential complaints
Other evolving claims trends have emerged since the onset of COVID-19. As mentioned, healthcare underwriters are monitoring EPLI and D&O litigation regarding employee safety claims and discrimination or wrongful termination claims related to vaccination mandates.
While there have been claims or class action lawsuits, litigation has not impacted rates so far as CMS’s COVID regulatory requirements for healthcare organizations have stood in the courts and have mitigated the results of the claims. Most D&O and EPLI claims filed to date have been dismissed or settled for nominal amounts
Healthcare worker whistleblower claims have increased dramatically over the past two years, with OSHA reporting nearly 8,900 “pandemic safety-related” complaints since the agency began tracking COVID data in February 2020 through early 2022.
EPLI policies typically include an exclusion clause that allows for whistleblower or retaliation coverage, but coverage varies from policy to policy.
Agents and brokers should pay close attention to ensure that coverage is not excluded in the future and to negotiate more favorable coverage terms for their clients.
From D&O’s perspective, the pandemic has placed a heavy financial burden on healthcare facilities, including through additional staffing costs. Carriers review the financial performance of healthcare organizations and implement a strict range of underwriting acceptability for financial and operating ratios accordingly.
The biggest threat to the D&O and EPLI healthcare markets after COVID is actually the same as before COVID – social inflation. This trend is affecting most business lines and leading to higher claims and higher losses for insurers.
Insurers continue to be cautious in offering policy limits for most risks, requiring healthcare entities to cover multiple layers to obtain adequate limits. This layering creates additional challenges to ensure continuity of coverage and eliminate potential gaps in protection.
What can agents do?
It is important that agents start working with their healthcare clients on policy quotes as soon as possible, as today’s extensive underwriting process takes longer.
Agents should ensure that applications are complete and contain detailed information about the insured, if required. If an organization has suffered significant disasters, these details should be included along with the measures taken to prevent similar incidents from occurring in the future.
Agents should advise their clients to take advantage of the many risk control services offered by carriers, particularly in the EPLI area. Underwriters will recognize if an insured is proactively engaging with them on risk control and factor this into their policy decisions.
By being aware of the challenges and risk trends, agents can help their clients structure an effective and efficient D&O/EPL program in the post-COVID environment.
Hobby, CPCU, ARM, has over 30 years of experience in the insurance industry, working primarily with healthcare organizations. He is a health care consultant with Connected Risk Solutions Healthcare Practice. His expertise includes insurance placements for all types of hospital systems, physicians and physician groups, and long-term care facilities. Email: firstname.lastname@example.org.
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