Tough risks, tighter markets: The future of human services insurance

Many states are extending or completely disregarding the statute of limitation and they can bring forth lawsuits from many years ago and that drives up claims costs, severity, and frequency. It's almost comical that now we build, you know, towers of coverage in one and two million dollar layers as opposed to the five and ten that were readily available. We're no longer dealing with, at least on the underwriting side, a geographic map that only has four or five problematic venues. There's almost no such thing as a good venue anymore. Hello everyone and welcome to an exclusive roundtable in association with Amwins, as we take a look at the challenges facing the human services insurance market and how to get the best results for clients. And to take us there, we welcome Jordan Connolly, Executive Vice President and Healthcare Practice Leader at Amwins. Joe Carlson, he is Executive Vice President, Healthcare Human Services Broker also at Amwins. And Greg Ferrell, National Vice President of Underwriting at Admiral Insurance Group. So welcome everybody and let's start by talking about the challenges facing today's insurance market for human services. Joe, can you outline some of those challenges for us? I would say the major crux of the issue in the human social services marketplace right now is that the package marketplace are not renewing or reducing limits on a ton of these risks. And there's a few main reasons for that. I think one of the main reasons that dives into some of the others would be that the plaintiff's attorneys are targeting these organizations because they know that they serve vulnerable populations. And the courtroom optics are very easy to take advantage of when they know that the story will be compelling and that they can get attention very quickly. As a result of that, there are a lot of losses piling up for a couple different reasons. One of the main reasons is that a lot of these policies have been written on a current form. What that means is that a lot of these carriers have been on these risks for many, many years. And they have consecutive years of limits that are exposed because of the occurrence form, meaning that the claims can come in on any given year. And there are many policy years that they can tag. They're tagging a lot of these claims on occurrence-based policies. And when you combine that with the tort reform, which we'll get into in a little bit, surrounding the statute of limitations, it encourages the plaintiff's attorneys to bring forth lawsuits from incidents that occurred many years ago. One of the other reasons that I think is really crucial to this whole issue is that the marketplace has historically underpriced these risks for way too long. So after years of historic underpricing, the losses and settlements compounding in severity and cost, like I had mentioned, and the package marketplace is really course-correcting and by reducing limits and getting off of these risks entirely, because they're not able to recoup on their premium-to-loss ratio. All of these reasons pushes the insurers into the E&S marketplace, which drives up the cost and changes their coverage outlook. So overall then, Jordan, is it a case that the market conditions today are just that little bit tougher right now? Yeah, you know, this is the toughest market we've seen in a very long time for human services, social services. So to Joe's point, it was the package markets driving everything in the space. So they had the market share, they were the ones to beat. Today, you've got a shifting attitude toward healthcare providers and social service providers and very unpredictable juries. The lawsuits and verdicts associated with these, people want to say, we've got these massive payouts or nuclear verdicts, and it's almost hard to say nuclear verdict anymore because they're so out of control. So that's pushed everything into the E&S market. The E&S market has responded, but that just means rates are higher, coverage is restricted, and there's less capacity at this point. So you also have coverage components of a human services account, such as higher non-owned auto and sexual abuse that used to be toss-in coverages that are now the drivers of losses and the drivers of the rate across the board. Interesting to hear sexual and physical abuse coverage mentioned a little bit there. Let's talk, if we can, about some of the challenges around that risk specifically. Joe, can you just give us a little bit of a definition, if you want, of abuse in these forms? There are two major pillars of abuse coverage that are important to this industry segment that I think we are talking about quite a bit. One of them is sexual misconduct liability, and the other is physical abuse. Depending on how a claim is put out, or the type of incident, or the details around the incident, it'll tag one or the other type of abuse coverage. So what's not included then, Jordan, in traditional SAM? So traditional SAM, what many brokers don't realize, especially, is the fact that physical abuse is not included in the sexual abuse wording. Now, we do see a shifting mentality in the marketplace where some of our markets are now including physical abuse with the sexual abuse definition, but that's not always the case. Usually it's pushed to the general liability. So that's just something to pay attention to and to make your clients aware that it is not part of the sexual abuse definition and the policy wording. And I imagine, Joe, as well, that tort reform is important here as well. Yes, tort reform is extremely important in this industry segment as well. One of the main things that is going on right now is that across the country, there is a mass push for statute of limitations tort reform. And this is extremely important, particularly as it relates to sexual and physical abuse. Many states are extending or completely disregarding the statute of limitations. So that brings forth reviver statute claims where they bring forth lawsuits from many years ago and from incidents that occurred many years ago that may have previously been disregarded because of the statute of limitations. But when you extend the statute of limitations or remove it entirely, then they can bring forth lawsuits from many years ago. And that drives up claims costs, severity, and frequency. And, Greg, just to bring you in as well, any thoughts around this? I do think there is a very large gap in understanding kind of throughout the marketplace of the specific definitions of what sort of abuse coverage is desired, granted, and ultimately quoted and bound. And I think the more that we can unify that message, whether it be through marketing, education, certainly the communication part of the brokering and underwriting of a deal, the better off that all the parties will be. Well, let's widen the discussion a little bit if we can, Greg. Well, just tell us from your standpoint, what are underwriters looking for in a human service submission? And indeed, how can brokers and retailers help better position their clients? I think a thorough understanding of what the insureds are actually doing. We've talked about it at a number of points even already, that the complexity of these risks has grown over time. Whereas the insurance programs that they were written under haven't necessarily evolved at the same clip. So the size and scope of what the insured is doing, a true understanding of the spread of those exposures, whether it be from a professional liability, a general liability standpoint, a thorough understanding of loss experience, whether they've had severity issues or not. The single biggest, I think, point that most underwriters will look for is the risk management that's involved, the oversight, the more that retailers and wholesale brokers can highlight what the insured is doing. And not just from a reactive standpoint, post a claim, but even more so from a proactive standpoint, just based on what they're seeing from their peers, what they've seen in the current marketplace, the more proactive that I think insured retailers and wholesalers can be, the better overall picture it paints for an underwriter. And with that sort of positive context, you change the dynamic with which the underwriter is reviewing an account. Some great tips from Greg, Joe, from your perspective, what turns a maybe into a yes or indeed what makes it a no? Sure. Greg alluded to this point too, but it's finding out what the insured is doing to improve their position from a risk management standpoint and promote those items. How are they preventing sexual and physical abuse? How are they preventing irresponsible driving? Or how are they preventing a serious amount of bad drivers from a hired and non-owned auto perspective? How are they making sure that they are insulated by making sure that their employees and contractors carry their own personal auto? What are they doing from a corrective action standpoint to prevent similar occurrences for those types of claims? I think that's something that is really important and something that our underwriters look for and something that Greg would be looking for for me to tell them, if there is a non-renewal from the marketplace and we needed to find a replacement. That's a lot of sense. And Jordan, just to bring you in as well, I mean, I guess, is it important just to kind of be nudging the underwriters a little bit about how important these programs are? Yes, absolutely. I often remind our underwriters that these programs are a very necessary part of society. They are serving an underserved and often overlooked population. And our communities need these programs. So how do we as brokers and carriers continue to support them and make sure that they stay in business? That's a big part of what we're doing. Yeah, and Greg, I'd love to get your perspective on this next question, if you don't mind, because there are plenty of insureds out there with mixed operations. So just tell us how underwriters approach those risks. With detail and with time. I think that for the most part, these aren't insureds that can be underwritten terribly quickly. It does take some time. It takes diligence. There is certainly a large amount of third-party data available. You just have to dive into each one of the service nuances and try to understand truly what the drivers of each of those exposures are. And then you take an aggregated look at the insured overall. I think Jordan said something that's incredibly important to note. As an insurance carrier, there's certainly lines of business we write that don't quite affect society as a whole. This is one area where I think even from a business standpoint, we can actually, from a societal standpoint, help and provide a solution where these insureds are not only contractually but morally obligated to carry these lines of coverage. There is a responsibility that I think that should and does shift to E&S carriers in the space who are trying to provide a tangible, affordable, to some extent, solution for insureds that have to maintain this coverage, as Jordan said, to keep their doors open. And I guess part of that responsibility, Joe, comes with really outlining how we get that information, the risk mitigation measures, et cetera. I think the common theme here is being proactive with our information-gathering process, understanding risk management, and being proactive about these questionnaires. How do we preemptively put together a submission so the underwriter can work on it much more efficiently with less questions up front? Something that I would ask for on any given submission with a large human social service organization where they have so many different modalities of service, I'd be asking things like, do they provide foster care of any sort? Do they do any sort of adoption work? Do they work with the Department of Human Services on any of that? Are they working in a correctional setting? What types of beds counts do they have, if any, if it's a residential risk? Do they have any sort of inpatient youth residential services? And if so, what does that look like? What types of residents are staying in there? Getting information is as simple as the bed counts by type, by location. So we understand on a per location basis, what types of residents are staying in these residential facilities and receiving the services that our insured provides. Another piece of that would be getting an understanding of how and why clients are being transported. Is that the insured's responsibility? Do they contract that out? If it's the insured's responsibility, do they have a driver safety program? Do they have multiple employees within the vehicles? Are they using company owned vehicles versus the insured and the employee's personal autos? Making sure that they are checking motor vehicle records to make sure that they have responsible drivers on hand. It's a lot of questions about kind of framing it in a way where it's like, are they doing this? Well, if they're not, they should be. Can we move towards a better solution from a risk management standpoint if they're not? So it's really, I think the biggest piece is gathering the exposure information upfront in an efficient manner because that is going to save us time and it's going to help us frame the risk so much easier. Jordan, anything you'd add around what underwriters are looking for? The flip side is for us to look at it upfront again, get the application in, review it, and then immediately go back to the broker and say, hey, we know that the underwriters are going to look at their staffing numbers. Do you have a story to tell on their staffing numbers? They are going to want regular NVR checks. They are also going to ask us, how often are you doing background checks on your employees? That's a very big question, especially when you're talking about working with youth. They will ask us about video surveillance and the types of locking mechanisms and passwords, passcodes used for entering and exit of facilities. So the more that we can get upfront, the better we can deliver the story and to Joe's point, move quickly through the process. Well, let's look into our crystal balls now if we can. I'm going to ask each of you what the future holds for the human services marketplace in terms of perhaps emerging exposures or the impact of societal and economic factors. Joe, let's start with you. I think one of the major themes is that there is a continuous growth in service offerings. So making sure we understand what the insured is doing sounds simple, but we need to make sure that we understand what they are growing into, what contracts they are accepting every single year, because we see that many of these risks are growing exponentially because they're accepting new government funding or donor funding that requires differences in coverage or amendments to their coverage. So perfect example of that would be digital health, telehealth risks. Are they providing counseling in a virtual setting? Something that is very new in the past five to eight years. And we've seen the behavioral health industry segment expand in this sector. And we know that the nonprofit human service, social service sector is going to grow into the telehealth arena as well. How they're managing mobile operations. We're going to see a large increase in mobile operations expansion. So we know that that's going to be something that is a new challenge for insurers and insureds to obtain insurance because that can be somewhat unpredictable. So making sure that we can anticipate these challenges is our job, making sure that we can get the coverage correct and grow with the insured as they expanded a new service offerings while they get these new funding sources and while they develop and mature their service offering. Among those challenges, Jordan, I'm guessing things like inflation, staff shortages, things like that. So you have so many factors at play right now kind of creating the perfect storm for an already strained segment of society and insurance in general. But at the crux of it, our medical malpractice and professional liability policies were not meant to focus on sexual abuse claims and hired non-owned auto, but they have become the driver of losses across the board. So now you have major question marks with carriers about how do we write this profitably when you have unlimited look-back periods or very broadened look-back periods for sexual abuse claims. So this has turned into shortened limits across the board. When we do that in the primary, it makes it very difficult to build excess limits over abuse and hired non-owned auto. And so these are challenges as brokers that we have to overcome. And I like to call it micro-layering, but it's almost comical that now we build towers of coverage in one and $2 million layers as opposed to the five and 10 that were readily available in the past. You also have these shifting attitudes that we talked about toward insurance companies and healthcare providers, professional liability providers, that coupled with the venues that used to be predictable, you could say that, oh, this was a tougher venue than this one. That's not the case anymore. You have really difficult venues across the country and juries that we have no idea what the outcome might be. So all of these things paired together make it extremely challenging for our markets to look at this. So to say, where are we going? I think it's only gonna become more challenging until we have real tort reform in place. From your perspective, how are the underwriters responding so far? Conservatively. I think in any time business leaves the traditional standard market and certainly in a package setup and makes its way into the ENS space, we start conservatively. And that's where Jordan and Joe mentioned sublimits and higher pricing and things like that. I think we'll continue to do that. Of extreme importance, I think is the collaboration between the retailer, the broker, and ultimately the insurance carrier. Understanding the pain points of the insured, Joe mentioned, contractual requirements, what sort of limits do they have to carry? There is a methodology for taking a conservative approach that's still constructive overall for the insured. If we know they need to build additional excess layers, we can still be conservative, but that also builds a foundation that insured can go build the additional coverage they may need. In terms of what I think it would take to truly improve that space, potentially way looking forward, could it go back to the standard market? Of course, it's going to need several years of profitability in the ENS space. Tort reform is a massive piece of this. Jordan mentioned, and I think it's very valid, we're no longer dealing with, at least on the underwriting side, a geographic map that only has four or five problematic venues. There's almost no such thing as a good venue anymore. The more nuclear verdicts, we're seeing it across state, across county, across just venues nationally. So we do need to be aware of that, and you certainly don't want to paint an entire spread of business with too broad of a brush. But to simply answer your question, I think we start conservatively, but ideally understanding the needs of the insured, where those pain points, the coverage transitions are, as they move from a package policy to an ENS setup, try to identify where we view the largest issues are, address those, work with the wholesale broker, the retailer, and ultimately the insured. And very generous with your time today, and some great tips so far. But let's just wrap up by summarizing, if we can, with each of you, how a wholesale partner can add value in terms of navigating the human services marketplace. Jordan, should we start with you? So, you know, I feel like it's a lot of doom and gloom here, but there is a silver lining to it. The ENS market has responded in the way that it should. So they see the need, they are giving us more and more capacity. So it doesn't mean that rates are going down, but it means that we have more capacity this year than we had the previous year. And I think that will continue. As far as a broker goes and where they add value, I mean, at Amwens, we have all the resources. We have all the access to the key players in this space. The markets that we know are tried and true. They know how to respond to these claims and how to write policies that will be appropriate for each of our clients. And so we also have in-house counsel that helps us with claims advocacy. And we have teams that follow the latest in tort reform and loss trends. So all of those things help us to do our jobs better and ultimately help our clients at the end of the day. Joe, should we get some thoughts from you? Yeah, to echo Jordan's point, using our specialization and our market expertise within the social and human services industry segment is going to prove the results in any given case. Opening up the marketplace because of our specialization and explaining why there is a way to do this profitably, you know, along those lines, creative solutions with manuscripted wording and different types of creative limit structures are going to help us bring in more markets into the play and to make sure that we have more options. And then I think the most important piece are developing our own product. You know, this is something that I think we've been working on for a long time and something that we all need to do as wholesale brokers are coming up with our own type of product to address the issues. And that's why we're partnering with Admiral on our product moving forward to provide a solution in this class of business and some of these marketplace issues. OK, and I guess from your perspective, Greg, perhaps the qualities that you're looking for in a wholesaler here. I think the key point always going to be collaboration and communication. This is a different market than has historically been in place for this class of business. So you certainly have to choose your dance partners carefully. But there's a reason that we want to partner with wholesalers like Amwins. They are specialists. They have control of the business. They have an understanding. And we're looking at these risks and the need for this insurance together. And we have an opportunity to actually build and correct a market to some extent, as Joe mentioned, with certainly new products or a new revised view of the way these risks should be evaluated and underwritten over time. Having the specialist influence at the wholesale level that we ourselves can learn from. And ideally, they can learn from us as well. It does need to be a collaboration throughout the tower of the process, not only from the insurance carrier and the wholesale broker, but the retailer and ultimately the insured. I think one thing that we're focused on as well as we look at all of our wholesale partners, but is the ability to proactively manage expectations throughout all the parties involved. And as many of these insureds, as we've talked about, are coming out of a standard market package approach, they're in for some sticker shock. They are in for varying terms and conditions throughout their policies that we want to adequately explain that we want to make as a learning opportunity while still enabling them to build the towers of insurance that they may need and solve the problems that they have. So what we're looking for, in addition to all that collaboration, is a willingness to educate and learn together. Yeah, I think that's a great point to wrap up with. And indeed, huge thanks to Joe, to Jordan and to Greg for your time today. Remember, if you want to know more about insurance for social services, well, just reach out to the AmWins team. And until next time, keep it right here on Insurance Business TV.