While many in the insurance industry were focused on the cyber liability, cargo theft, and weather segments in 2012, this year a number of insurers are turning their attention to other emerging markets with potential. Carriers and brokers are strategizing over how they can best address three hot topics in particular: healthcare, the fracking segment of the energy market, and reputational risk. These segments aren’t new to the industry, but they do present new exposures.
Some companies are developing products to meet what they consider to be an inevitable demand for coverage options in these three areas. It remains to be seen if others will follow suit, but these segments are here to stay and will create new opportunities – and exposures – for those seizing them.
New Healthcare Regulations/Accountable Care Organizations
To say there have been some big changes in the healthcare market is an understatement. Since the introduction of the Affordable Care Act in 2010, the healthcare industry has been in overdrive to meet its criteria. That pace has only picked up since the Supreme Court ruled the act constitutional last June.
Healthcare initiatives known as accountable care organizations, or ACOs, are a major component of healthcare reform. ACOs are networks of health care providers working together to provide a full range of health care services.
There are many factors – and risks – that go into establishing and running these organizations. For starters, groups of physicians that practice different areas of medicine can need insurance tailored to their individual specialty and it makes for a more complicated and expensive insurance policy when they are all part of one entity. The ACO delivery model can also include a quality care aspect where an ACO’s profits are based on quality metrics.
Frank Castro, national practice leader for insurance broker Willis, says there was a lag in the adoption of the ACO model itself because of challenges to the Affordable Care Act, but since the Supreme Court’s decision, the federal government’s approvals of ACOs have multiplied by three or four times.
Insurers, however, have been slow to respond with insurance services that address these new healthcare risks, according to Castro, who believes this is partly because they still don’t understand or aren’t comfortable with the new exposures ACOs present.
“ACO’s with multiple stakeholders bring different risks to [carriers] like managed care E&O or physician’s liability that they wouldn’t have otherwise written and it becomes challenging,” says Castro. “Also, I think it has to do with the market opinion of what the client need is. The markets have been slow to adopt the fact that the healthcare market is changing and it’s changing every day.”
Willis opted to address the new coverage needs of ACOs last year when it unveiled a standalone insurance liability policy in partnership with insurer IronHealth. The coverage features several options, including: directors and officers (D&O) liability, managed care operations liability, medical professional liability, and general liability, to name just a few.
Castro says clients are looking for ACO and delivery model resources that go beyond just a specific product.
“The product is the easy part, but it’s not necessarily going to be adopted by the market,” he says. “We found out early on that it was more about the risk diagnostic process around stakeholders and ACOs that was valuable to clients.”
Willis has since put together an ACO resource team that includes experts on all the subject matter ACO stakeholders may face – from D&O to managed care errors and omissions (E&O). Castro says they are still offering the ACO product while also looking at other product options that clients need in the current healthcare environment, such as regulatory and stop loss coverage.
“We have a very big pipeline we are working on in the ACO space, but as that number increases and different types of entities are involved, that discussion will precipitate the need for other solutions,” says Castro.
Evan Smith, healthcare underwriter and miscellaneous medical focus group leader for Beazley in Chicago, says buyers and brokers are not particularly happy with the current coverage offerings – or lack thereof – available to ACOs right now.
Smith says Beazley is trying to determine the best way to address the new ACO exposures, but it is a challenge.
“Because ACO risks have a predominantly different structure than a typical healthcare physician practice, they have to buy a standalone insurance program; ACOs can’t just be part of a sell of a [typical] healthcare program,” says Smith. “We are looking at it and it is something we will probably do, but we are cautious in the managed care space.”
Beazley is addressing the increasing regulatory concerns of healthcare entities with its healthcare regulatory E&O policy that it launched early last year. Smith says the heart of the policy responds to claims by the government for billing E&O, which has been an issue for many years. The difference now is that the government has stepped up its efforts to weed out fraud and abuse, and healthcare reform is making it harder for insureds to keep everything straight.
Demand for the new product was slow last year, says Smith, but Beazley spent the last 12 months meeting with clients and explaining the coverage, which has resulted in a surge in buying activity so far in 2013. Smith attributes that to clients allocating money in their budgets to buy the product this year.
“Based on the bind needs, exposure and risk transfer needs of our clients, we knew they were going to continue to be interested in this product,” says Smith. “The need was there, the landscape changed and that wasn’t going to go away.”
The coverage protects against E&O claims brought by or on behalf of governmental entities – with a broad definition of government entity – and also responds to billing claims from commercial payers. The policy covers defense expenses, civil fines and penalties but does not respond to government actions or anything criminal.
Most recently, IronHealth launched IronMed NC for hospitals and their physician employees. The hybrid liability product addresses the integration of medical professionals into the hospital space and the specialized risk management and claims handling that is required. The policy is currently only available through MMIC in North Carolina, but the carrier may look to expand to other states with MMIC of N.C. It is also looking to forge similar partnerships with other regional physician malpractice companies.
As 2013 goes on and healthcare initiatives including ACOs continue to be formed, insurers will be increasingly challenged to find the most effective ways to meet the changing needs of their insureds. Castro and Smith say listening to clients is a simple yet important part of deciding what products, or resources, to develop.
Castro says agents can play an important role in this process and should educate themselves on all aspects of the Affordable Care Act, including the timeline for state and federal exchanges and future delivery model changes, like ACOs.
“Agents and brokers need to come to the understanding that current risk and exposure solutions for clients may not be what they need in the confines of these new changes,” he says. “I think there is an opportunity to partner with the insurance marketplace to create solutions for clients like we have done historically as an industry.”