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Survey Report

Insurance Marketplace Realities 2022 – Managed care E&O and D&O

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November 15, 2021

Insureds must understand that E&O, management liability and cyber are connected and following the same hard road.

Rate predictions

Rate predictions: Managed care E&O and D&O
  Trend Range
Overall Hard market conditions  
Public managed care organizations and Blue plans +25% or more
All other managed care organizations Increase (Purple triangle pointing up) +15% or more
Hybrid entities (Accountable care organizations, third-party administrators, revenue cycle management, etc. Increase (Purple triangle pointing up) +20%

Key takeaway

Insureds must understand that E&O, management liability and cyber are connected and following the same hard road.

The market remains hard. Rates are beginning to stabilize but increases and coverage restrictions are still significant.

  • Carriers are insisting on retention increases, sub-limits and exclusionary language, especially related to antitrust and third-party privacy claims.
  • Now, more than ever, the management and structure of an entire risk transfer program — analytics, limits, retentions, coverage across all lines, matching of markets to insureds, alternative finances, captives, etc. — must be strategically planned to achieve the best results.

Is new capacity leading us out of a hard market?

  • Two carriers have entered the excess managed care E&O and D&O market, including Blue plans. This additional capacity is limited in coverage and appetite, but we are seeing an increase in competition that is opening up more excess options for our clients.
  • One of these carriers is considering taking primary managed care E&O and D&O positions in early 2022, which will help fill the gap created by a major carrier’s exit from the managed care E&O market. This market departure continues to be disruptive because they historically wrote managed care E&O risks that no other market would consider.
  • No new offshore capacity has entered the market. Bermuda and London are high excess markets only.
  • Domestic carriers and their offshore counterparts closely coordinate capacity.

Capacity problems (especially for large towers) and coverage restrictions continue. Although the impact is being felt more by for-profit entities than non-profits, non-profit managed care organizations (MCOs) of all types and sizes face similar challenges.

  • The hard market has extended to hybrid MCOs, provider-owned MCOs and smaller entities as well as more traditional organizations.
  • Carriers continue to segment their business between Blue plans, non-Blue plans, public companies and hybrids.
  • Many carriers require managed care E&O participation to write a D&O/management liability package, which creates anti-stacking coverage concerns, as well as issues related to rate and capacity in larger towers.
  • Coverage restrictions are rising for all MCOs. Key coverage concerns include antitrust, cyber/third-party privacy claims, regulatory investigations and punitive damages. Political and regulatory uncertainty at the federal and state levels is adding further complexity to the marketplace.
  • Reinsurance carriers have increasingly serious issues with antitrust exposures, concerns that are no longer limited to Blue plans. Reinsurance rate increases and capacity in this market are also impacting rate, coverage and capacity.
  • Systemic risk plagues MCOs, and managed care E&O and D&O carriers continue to assess their entire portfolios as they manage their capacity and exposure to aggregation risk.
    • Buyers can help themselves obtain the best possible terms by hosting carrier renewal meetings and providing submission materials well in advance of renewal dates. These materials should include complete claim information, membership breakdown by type of member, and a complete list of managed care core and non-core services. Individualized underwriting is key.
  • Analytics are another key in responding to the hard market. Broad and reliable analytics can support optimal selection of retentions, limits, captive use and alternative risk transfer options across the entire entity. While product line analytics can help an MCO employ the best program for a specific risk, entity-wide risk analytics can help build the most efficient program for the entity as a whole.
  • Alternative risk transfer solutions such as captives must be considered together with commercial market placements to achieve optimal efficiency, effectiveness and return on investment. The availability of a captive and its use as a primary, excess, difference-in-conditions or reinsurance carrier have been very effective for some MCOs.

Buyers should be aware of claim scenarios that can create coverage problems.

  • Antitrust: Over the last 25+ years, the managed care industry has been involved in many antitrust claims. The ongoing In Re BCBS Antitrust Litigation is but one example. Antitrust claims can take many forms and follow various legal theories and may be prosecuted in state, federal and foreign jurisdictions. They can be filed by members, providers, competitors and governments. They can be class actions, but many are not. They require specialized legal representation and are expensive to defend. The resulting losses are not always 100% covered. Coverage for these claims is tightening significantly. The recent passage of the federal CHIRA legislation, the Biden administration’s focus on antitrust in healthcare and state law, and regulatory pressures have and will continue to create disruption.
  • Network security and privacy: Cyber risk is a top risk for every MCO. MCOs maintain large amounts of protected data on millions of members, send and receive billions of dollars monthly and collect biometric data. Efforts to obtain this information by foreign governments, criminal enterprises and other hackers are an everyday occurrence. Claims related to lost business income, ransomware payments, breach response expenses and first- and third-party losses are all on the rise. While there is capacity in the marketplace, buyers must take note of coverage restrictions, the need to dovetail coverage terms with other lines and the difficulty of determining proper limits. Social engineering, ransomware and technology E&O coverage restrictions are growing. State, federal and foreign exposures based on new and changing legislation and regulatory enactments are also adding to the pressure.
  • Government fines and penalties: Because MCOs are so tied to government reimbursement, the likelihood is high that plans will be the subject of a government investigation, False Claims Act action, whistleblower lawsuit or administrative fine/penalty. Beyond restitution, damage awards, fines and penalties, defense costs alone can exhaust a risk transfer program. International regulatory compliance is another risk in countries (e.g., the UK, EU, India) where many MCOs now have business operations.

The market impact of COVID-19 is still unclear.

  • The impact of the pandemic and the ensuing economic downturn on this segment is still unclear even as we near what all hope are the last chapters of the crisis. Most of the adverse impact will ultimately be financial: medical loss ratio, workers compensation and employee benefit claims as well as those related to remote work and return to office.
  • However, the pandemic itself is unlikely in the near future to have a significant impact on rates or coverage terms. The pandemic-related risks associated with managed care entities of all sizes and types are financial/first-party loss-related. Such risks are not generally covered under managed care E&O policies. 

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Contacts

Kenneth White, J.D.
National Managed Care Practice Leader

Kathy Kunigiel
ARM, RPLU
Senior Managed Care E&O Placement Specialist

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