EXECUTIVE SUMMARY
A healthcare organization’s practices can significantly affect its malpractice insurance rates. Controlling the right factors can lower premiums.
- Risk mitigation tactics are a major driver in premiums.
- Premiums have increased sharply over the past two years and probably will continue to rise.
- Underwriters can be influenced by participation in recognized risk reduction programs.
Insurance premiums are influenced by many factors. Some factors are out of the insured healthcare organization’s control, but hospitals can earn lower premiums by showing a concerted effort to improve patient safety and lower risk.
The insurance market had been soft for about 20 years. But hospitals have seen premium increases averaging 20% over the past two years, says Steve Kahl, senior managing director of the healthcare practice with risk management and insurance provider Gallagher in Denver.
Those rate increases hit at the same time as the pandemic, which sharply reduced the elective procedures that can comprise about 65% of any hospital’s bottom line.
“It made the hard market all that much more difficult,” Kahl says. “For larger institutions, underwriters are looking mainly at loss history and loss severity to come up with a premium, so risk mitigation strategies are key. Risk managers seeking to reduce that premium are looking at the kinds of policies and procedures they can put in place after a loss to prevent that from recurring. If they can do that, it’s going to have a long-term impact on the premiums they’re going to pay.”
A healthcare organization seeking to reduce premiums or minimize increases needs to highlight its organizational successes, Kahl says. Show strategic growth initiatives and illustrate how the hospital improved patient safety and minimized the risk of adverse events.
Data showing the positive effects of these initiatives will be useful for the underwriters, Kahl explains. Analytics and claims benchmarking can identify emerging trends that affect premiums.
“Tell a really good narrative up front to highlight your underwriting submission, move it to the top of the pile, get it noticed by the various underwriters so that they get a little bit excited about what you’re doing as an institution. Then, they can get aggressive in their underwriting position on your organization,” Kahl says. “There are a lot of great success stories to tell right now because healthcare organizations are re-energized about enterprise risk management [ERM]. There is a new push for a more cohesive ERM strategy within the institution, and if I find that my healthcare clients are engaged in that, I make sure I am highlighting it.”
Adopting the Communication and Optimal Resolution (CANDOR) process also will attract underwriters’ attention, Kahl says. (More information on CANDOR is available here.) CANDOR often can lead to an earlier resolution, result in a lower payout, and even lead the patient or family to decide against litigation.
“That’s another good area to talk about. Underwriters — and, in particular, the claims folks within our carriers — are excited to hear that that’s the approach you’re taking,” Kahl says. “There are no immediate rate credits for that, but if it helps get to an early resolution of a difficult claim, there is going to be a longer-term impact on the premiums you pay.”
Risk managers should strive for a direct relationship with their insurance representatives and underwriters, Kahl says, as that will give them a better understanding of what drives the insurers to reach the final premium.
The insurance marketplace has tightened in recent years with the exit of big players like Swiss, Re, Zurich, Hallmark, and CNA from the healthcare marketplace. Rates will be higher than normal for a while until more insurers arrive and build further capacity, Kahl says. That makes captive insurance programs more attractive for many healthcare organizations.
“The ones that haven’t formed captives in the past are now really pushing their leadership to consider it. It helps them assume more risk, and it provides for a stronger investment strategy,” he says. “The premiums you pay into your own captive tend grow at a robust rate.”
If a healthcare organization is unhappy with the stated premium, all is not lost, Kahl says. When you have reason to think you deserve a lower premium, and evidence of your risk mitigation strategy and ERM culture to prove it, the hospital can work with its broker to push for a lower premium.
That does not guarantee the broker can produce a better premium. But the relationship with the broker should be strong enough that you can ask why.
“At the end of the day, as your broker, I want to be able to tell my client that we’ve tested the marketplace, we’ve gone to every carrier that has an appetite for your risk, and we didn’t settle for the first quote we got,” Kahl says. “The goal should be for the healthcare organization to put its best foot forward, for the broker to do his or her best in finding an optimal program structure, and for all parties to be comfortable that they achieved the best result.”
SOURCE
- Steve Kahl, Senior Managing Director, Healthcare Practice, Gallagher, Denver. Phone: (303) 889-2624. Email: steve_kahl@ajg.com.