The Care Sector: How are Insurance Markets Responding to COVID-19?

The UK care industry has undergone arguably the most difficult period in its history during the COVID-19 pandemic.

The industry has reflected on many of the difficulties, including the tragic loss of life amongst service users, but one area that has not attracted widespread attention is the challenge the care sector will face when it comes to insurance buying.

As well as obtaining statutory insurance cover, businesses are often required to obtain cover for contractual reasons. For this reason, most businesses and investors regard appropriate insurance as a necessity to protect the balance sheet. Increases in premium or additional exclusions could prove extremely challenging.

Insurance pricing had been increasing globally for at least twelve months before the pandemic. In fact, in the UK the care industry has seen rate increases ranging from 10% to 95% across several lines, including professional and general liability, management liability, and property, prior to the COVID-19 outbreak. Post-COVID-19, premiums are set to increase further, in some cases exponentially. Management liability rates have on occasions been increasing by 400%-500%.

A key concern for insurers is how the claims landscape will be impacted by COVID-19. Insurers are expecting to see an increase in employers' liability claims due to both exposure to infection, and to stress. Medical negligence allegations from service users or bereaved family members could also see an increase in directors and officers liability claims.

Insurers that have historically provided cover for the care industry are now far less receptive to the sector. While most insurers are agreeing to provide renewal terms to existing customers but often with significant price increases combined with potentially onerous cover restrictions. Such cover restrictions could have a significant negative impact to care providers' balance sheets with a second wave of COVID-19 emerging in the UK, or if there is a new outbreak of an infectious respiratory disease.

Insurers are also taking a much tougher stance when it comes to underwriting. For example, they are looking hard at CQC reports where homes are rated inadequate or require improvement. This is a particularly strong stance, as research carried out in the US by Harvard Medical School, Brown Public Heath, and The University of Chicago on the sizeable US senior care sector showed that key determinants for outbreak were location (facilities in urban areas with a high number of cases) and facility size – the rating of a facility did not impact the occurrence of an outbreak.

Insurers are also looking for much more assurance around the risk mitigation and risk management provision of the business, with infection control likely to be in the spotlight. The use of agency staff will also likely be a consideration for insurance markets in the future.

In preparation for likely increases in insurance pricing, it is imperative that companies in the care sector review their insurance and risk budgets.

The Care Sector: How are Insurance Markets Responding to COVID-19?

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Philip Dearn

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