Many factors, including changes in healthcare delivery, tort law, the litigation environment, the rise of nuclear verdicts, social and economic inflation, and changes in reimbursement from fee-for-service to value-based care are impacting the healthcare industry. Additionally, patient volumes are down slightly year over year, and operating margins are improving. However, these issues are not universal across the industry. Generally, larger systems are faring better, while smaller, community-based hospitals face challenges.
We’ve identified several key factors that impacted market conditions for the healthcare industry in the first half 2024 for the property and casualty sector. This article provides an overview of market conditions, coverage considerations, and recommendations.
Property & Casualty
Market Conditions: Within the property and casualty sector, our analysis examines mergers and acquisitions, staffing shortages and burnout, cyber incidents, excess liability and reinsurance, and artificial intelligence.
- Mergers and Acquisitions: According to Kaufman Hall, a leading healthcare consultant, healthcare mergers and acquisitions remain at a record high, with 31 announced hospital mergers in the first half of 2024. Acquisitions across payer/provider lines have resulted in UnitedHealth Group subsidiary Optum being the largest employer of physicians in the U.S. CVS also employs many physicians through its Oak Street subsidiary. Regulators and legislators are increasingly scrutinizing private equity investments in healthcare. Several high-profile cases have recently received negative publicity, and several members of Congress are pushing for legislative change that would create higher barriers to entry for private equity.
- Staffing Shortages and Burnout: Staffing shortages continue to be a challenge for healthcare organizations, impacting the cost of labor, productivity, and burnout rates. The shortages impact almost all clinical categories but continue to be most prevalent in nursing. During the pandemic, healthcare providers and hospitals turned to pro re nata (PRN) nurses and travel nurses to maintain staffing levels, which led to a significant increase in labor costs. Shortages also increased stress levels and burnout among employed staff, leading to further strain. Many healthcare organizations are enhancing benefits and rewards. Investments in programs such as subsidized childcare and tuition reimbursement can improve retention.
- Cyber Incidents: Hospital and health system vendors continue to be targeted in cyberattacks, creating data breaches that ultimately affect healthcare organizations. In 2024, health systems across the U.S. reported that patients’ protected health information was compromised due to data breaches at their vendors. The most significant cyberattack to date was against UnitedHealth Group’s Change Healthcare in February 2024. As a result of this and other high-profile cases, ransomware attacks have become an enforcement priority for the U.S. Department of Health and Human Services (HHS), which is emphasizing the importance of safeguarding patient data and ensuring that healthcare entities are prepared to protect these records from cyberattacks. Federal regulators recently fined a Pennsylvania-based healthcare system $950,000 and imposed a corrective action plan for potential Health Insurance Portability and Accountability Act (HIPAA) violations linked to a 2017 ransomware incident. The settlement is the third HIPAA enforcement action by the HHS involving ransomware.
- Excess Liability/Reinsurance: The excess liability/reinsurance marketplace has changed significantly, with most carriers reducing their capacity. However, the industry has shown remarkable adaptability, increasing the utilization of quota share arrangements and combining U.S. and international markets to build capacity. This adaptability instills confidence in the industry’s ability to overcome challenges.
- Artificial Intelligence: The Emergence of Artificial Intelligence (AI) continues to expand in healthcare. As AI-driven cybercrime evolves and regulatory scrutiny surrounding AI practices increases, we expect the insurance market to devise a cohesive approach to address these challenges.
Coverage Considerations: Current trends are expected to persist with all available data indicating the market will continue to harden. The brief respite in claims during the pandemic is over, and we have seen claims frequency and severity resume where they have left off. We anticipate incremental premium increases to continue for the foreseeable future to offset the risks of nuclear verdicts.
Additionally, some carriers are seeking increases in self-insured retentions, and many are cutting back on capacity. This, in addition to rate increases, is becoming commonplace for many renewals. We now drill down into coverage considerations for various segments of the market:
Professional Liability: While the number of claims has bounced back to pre-COVID-19 numbers and remains stable compared to pre-pandemic numbers, the payout for claims continues to rise. Medical malpractice payouts increased as more nuclear verdicts, which are $10 million to $25 million, and thermonuclear verdicts, which are those larger than $25 million, are reached. Such large verdicts are primarily driven by premature births, congenital anomalies, and cancer care. No signs of a decline in this trend are apparent, so it is expected to continue and accelerate, leaving insurance carriers vulnerable to significant losses. If this risk grows, it may change underwriting and make acquiring coverage more difficult.
As nurse practitioners and physician assistants become more prominent in healthcare, medical malpractice markets seek more appropriate pricing that better aligns with the adapting roles, as we’ve seen significant rate increases for these policies in 2024. Similarly, we see an increase in per diem nursing and 1099 contract employees and recommend carefully considering these employees’ coverage options.
Property: Healthcare organizations face continued pressure to increase property values due to inflationary pressures, though the percentage increases required by carriers have started to moderate. Hiring an outside appraiser ensures an unbiased property valuation compared to an insurer’s assessment. Capacity is limited for catastrophic exposures and risks with a large concentration of frame construction. Carriers continue to seek higher deductibles, especially for wind/hail, due to increased convective storm activity. Organizations may need to layer policies from multiple insurers to secure sufficient coverage.
Cyber: Rate increases have recently stabilized, but the Change Healthcare and CrowdStrike airline incidents could impact future rate increases. For organizations that experience a ransomware incident, whether directly or via a third-party service provider, we recommend notifying insurance carriers of potential circumstances and looking to policies—primarily cyber, but also directors and officers and professional liability—for possible coverage. We also recommend seeking outside counsel to ensure compliance with HHS guidance.
Workers’ Compensation: Workplace shootings and violent attacks continue to be a concern for healthcare organizations. Healthcare workers are five times more likely to sustain workplace violence injuries than employees in other fields. At the same time that healthcare workers are in harm’s way, workers’ compensation policies often exclude injuries suffered through deliberate acts of violence. An incident with an agitated patient coming out of anesthesia may be covered under workers’ compensation policies. However, an armed disgruntled patient causing harm to one or more healthcare workers may not be covered by workers’ compensation, meaning that affected parties may be subject to financial exposure and lack sufficient support following such an incident.
Auto: Many carriers are reluctant to offer stand-alone auto coverage for healthcare risks. Most auto carriers will only consider writing coverage with a supporting line of business. There continues to be a minimal appetite for ambulance/patient transport risks in the marketplace.
Recommendations: To cope with rising costs and the appetite many carriers have in terms of limiting coverage, we offer the following suggestions:
- Start renewals early to allow time to overcome obstacles and engage in negotiations should unexpected challenges arise. Ask your broker to review market options every few years.
- Develop enhanced benefit systems for providers, standalone coverage for allied healthcare providers, and clearly define coverage options for your contract employees.
- Implement robust patient safety/risk management programs and use data analytics to determine what those programs should look like.
- Establish clear governance policies on how AI use will be monitored at a corporate level. Develop a clearly defined strategy for integrating AI. Before implementing AI, ensure your data infrastructure can support such initiatives. Invest in cloud computing, data analytics, and machine learning tools.
- Develop communication safeguards, including security assessments and implementation of no-tolerance policies to promote a safer workplace for employees.
- Implement IT systems to meet pixel tracking requirements. Be prepared to prove you have proper protocols in place.
- Ensure you have a good working relationship with your broker and carriers. If carriers are unaware of everything you do within your healthcare facility, you may have uncovered exposures.
To access the report, “State of the Insurance Market – 2025 Initial Outlook and 2024 Wrap-Up:
Healthcare,” please click here.