The Affordable Care Act
has altered the insurance landscape for many personal and commercial lines, including directors and officers (D&O) liability. While a report from Marsh Risk Management Research indicates D&O rates for healthcare organizations are rising due to increased liability under the ACA, one D&O expert said producers will still be able to bring in record sales from the sector in coming years—provided they position themselves correctly.
“Whenever there is a change in the law, there is a potential for additional liability because it will take the courts a number of years to figure out what everyone’s responsibilities are. This gives rise to an increase in D&O exposures,” said Ty Sagalow, a former D&O advisor with AIG and Zurich, and current president of the consultancy firm Innovation Insurance Group. “The ACA is probably one of the largest changes in our social transfer since Social Security. It is completely understandable that there will be resulting complexity and higher exposure for directors and officers of healthcare providers.”
report reflects Sagalow’s views, indicating the average primary D&O rates for midsize and large health systems increased 9.6% in the third quarter of 2013. Smaller organizations also saw their rates increase 12.7% during the same period.
Mark Karlson, Marsh’s FINPRO Health Care Practice Leader, said the D&O market will continue to be “much more challenging…for healthcare companies,” and added that additional rate increases into 2014 are likely.
Despite the increasing expense of the product, however, Sagalow believes demand will remain strong. Indeed, Marsh said 73% of its own healthcare sector clients renewed their D&O policies through 2013.
This could mean a windfall for producers who present the right sales pitch and position themselves as more than just a broker.
“[D&O] is going to become a necessity, if it’s not already,” Sagalow said. “I think the better brokers will be able to explain not just the higher premium, but the higher exposure, and that astute healthcare companies will realize today—even more than in the past—the need for D&O insurance.”
Sagalow said producers will also need to become risk advisors for healthcare firms, and become extremely well-versed in ACA requirements for minimum coverage, terms and conditions, price condition exclusions and even cyber liability to make the most of the increased need for D&O.
“The best brokers see themselves as sophisticated risk advisors that are not there to sell insurance, but to sell a risk management approach,” Sagalow said. “The more complex the liability, the more difficult the job for the broker. But, it also gives the broker the opportunity to distinguish themselves, and the best will rise to the top.”