London (Still) Calling for US Healthcare Risks
Charles Kolodkin | May 9, 2024
Almost 20 years ago, healthcare organizations were still experiencing the effects of the most momentous and difficult medical malpractice insurance market in history. The first few years of the 21st century had been catastrophic for the industry, with combined ratios exceeding 140 percent and insurers abandoning the business in droves. Hospitals and physicians were desperately seeking options, including from sources they had never considered.
In light of that environment, I coauthored an article with John Sutton, a professional colleague of mine and highly experienced Lloyd's broker, alerting American healthcare organizations of viable alternatives. The article, "London Calling (For US Healthcare Risks)," and the sentiments expressed remain relevant to today's tough medical malpractice insurance market, although subject to a bit of updating.
Raising the awareness of the US healthcare industry to the London marketplace was one of the key objectives of the original 2005 article. Many hospitals and physician groups had been relying on one or two insurers for coverage and were left unprepared when those insurers either discontinued writing coverage (St. Paul) or went into receivership (PHICO). Some had only been interacting directly with the insurers, while others depended on their local insurance agent; in any case, there was very little understanding of other practicable coverage sources such as those in London. Another goal of the article was to assure potential buyers that Lloyd's and other London-based insurers were financially secure and reliable business partners.
It is hoped the organizations that heeded the message and responded to the London call were satisfied with their decision and have found reasons to stay. For those others, now is an appropriate time to reconsider. Although the English rock band The Clash is no longer with us, the Lloyd's market endures, and London is still calling for US healthcare risks.
Financial Stability
About 20 years ago, legitimate concerns existed regarding the stability of the London market amid the seemingly unending tide of asbestos, pollution, and other catastrophic claims. In response, a number of regulatory measures were undertaken that raised capital standards and increased financial strength. Accordingly, Lloyd's is currently among the largest, safest, and most resolute insurers and is rated "A" (Excellent) by AM Best and AA- (Very Strong) by S&P.
Gross written premiums now exceed $50 billion annually. Moreover, many of the largest insurers in the world—such as Chubb, Tokio Marine, and Berkshire Hathaway—operate Lloyd's syndicates and actively insure risks. Today, there should be little doubt that losses insured by Lloyd's will go paid.
Today's London Market
The good news for US healthcare risks in 2024 is London remains a viable source of coverage for both existing insureds as well as those who have never sought insurance internationally. However, hospitals, clinics, and physician groups are preferred, while assisted living, correctional medicine, and behavioral health are viewed as unfavored healthcare business classes. In fact, due partially to the development and availability of experienced underwriting personnel, the London market as a whole has been expanding its footprint in the American medical malpractice sector.
It is important to point out the cornerstone of the London market is the principle of syndication by which a single underwriter acts as a lead in setting the pricing and coverage terms and then offering a specific amount of coverage, often as a quota share. For example, a lead insurer might decide to offer $3 million of coverage, either as a single amount or more likely in a tranche (i.e., a 30 percent part of a $10 million total), with the remaining $7 million or 70 percent completed by a number of syndicates following the lead.
This approach is advantageous to both the insured and insurer: The insured is not reliant on a single insurer that could quickly restrict its writings. Correspondingly, the insurer limits its liability from a large catastrophic loss suffered by an insured.
Hospitals and physician groups approaching London for the first time should be aware London is a market for excess coverage and should not expect to purchase primary insurance, even policies with deductibles. Initial excess liability coverage attachment points would expect to range from $1 million to $10 million or more, depending on the risk's jurisdiction and overall size.
London's approach to insuring American hospitals and physician groups has been characterized by its steadiness and creativity. Though numerous domestic and European insurers have entered and then exited the medical malpractice insurance markets, Lloyd's syndicates have remained a reliable source of coverage.
It is important to point out that London has not been hesitant to reduce the coverage limits offered or restrict certain policy terms, conditions, and definitions. Not surprisingly, this typically occurs in the face of adverse claims experience, either suffered by an insured, a jurisdiction, or a class of business (e.g., orthopedic surgery due to injuries from pedicle screws).
Similar to others, the London market for healthcare professional liability (HPL) insurance is undergoing changes as the industry transitions into a post-COVID world. In most situations, the maximum amount of coverage a single underwriting facility might extend to a risk would be $10 million, with limits of at most $15 million offered in rare circumstances. Thus, a large hospital system seeking total limits of $50 million to $100 million could need more than a dozen insurers to provide coverage.
The other significant changes that have occurred in the London HPL insurance market are restrictions related to claims asserting sexual misconduct. The frequency of these claims has been rising and notably been the source of the largest claim payments. As a result, underwriters are either excluding coverage for sexual misconduct or putting sublimits on their policies for these types of claims. Additionally and crucially, since so many sexual misconduct claims have a batch component, underwriters will often restrict what claims can be considered a single batch occurrence.
Presently, there are a number of syndicates and companies actively insuring American hospitals and physician groups, either as leads or following markets. Beazley, Brit, Chaucer, and Convex are often seen as lead markets, although Arch, Canopius, and Coverys will serve either as a lead or following market. Capacity afforded by UK-based affiliates of US insurers, such as AIG and Liberty, would be additionally available.
The best way for American healthcare organizations contemplating or evaluating the London market is to utilize their domestic broker or agent. The domestic broker will then approach one of the many experienced London-based brokers for advice and intermediary services. The London broker will, in turn, present the account—containing comprehensive underwriting materials—to a variety of Lloyd's syndicates and other European-based companies. The London broker with a thorough understanding of the markets' appetite for risk can then secure the best coverage proposal for its American client.
Conclusion
As many US healthcare risks have experienced, the London market has been a steady source of medical malpractice insurance coverage for decades. Many of these insureds, valuing consistency and stability, remain loyal to London. For those healthcare organizations that have not done business with the London market, it is time to reconsider and pursue this alternative.
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