A recent survey from Integro Re, a division of Integro USA Inc., revealed that the growth in the Provider Excess insurance market has stalled in 2015.
The estimated total premium for 2015 is $167 million, representing a 3% drop from $172 million in 2014.
The annual survey examined 15 of the top insurance and reinsurance companies in the Provider Excess sector. Companies were asked for their premium volumes in 2014, and for projections for 2015 and 2016, as well as their current and anticipated level of participation in emerging population health coverages.
According to the survey, premium volume is dropping as population health risk is growing rapidly. Integro Re's analysis of underlying reasons for the stagnation of total premium includes:
- Rate adequacy as a key driver: Rate levels have dropped 5% since 2013.
- Many buyers are accepting the large claim protection offered by payers in their provider risk contracts, essentially closing out the Provider Excess market from their services.
- Higher retentions and the use of captives have also led to more risk being retained by providers rather than being ceded to the insurance market.
"Risk takers need to be educated on the stop-loss coverage embedded in their provider risk contracts," said Peter Robinson, accident and health practice leader at Integro Re. "The provider excess market will beat the payers on price and service nine times out of 10."
Survey respondents displayed optimism for 2016, anticipating strong growth. Their premium projections for 2016 are $190 million, which would represent a 14% increase over the estimated 2015 total.
Much of the 2016's growth is expected to come from new sources of risk in the provider market.
For instance, many Medicare Accountable Care Organizations will take on significant risk in 2016, whether through Track 3 of the Medicare Shared Savings Plan or as a Next Generation Accountable Care Organization. The need for aggregate protection against an extremely costly outcome exists, despite the inclusion of truncation clauses in contracts that limit large per-claim risk.
Commercially, rising pharmaceutical costs have fueled demand for protection against a huge hit to a risk taker's bottom line.
"Provider excess isn't just a per-claim excess-of-loss coverage anymore," notes Patrick Gallagher, chief actuary at Integro Re. "Whether it be specialty drug costs, pandemics or surge risk, there is a growing need for aggregate protection for risk takers across the healthcare spectrum."
The survey also found that:
- Fewer than 25% of the respondents currently have aggregate coverage on their books, even though a number of underwriters indicated a willingness to write aggregate provider excess coverage.
Robinson said, "In the past, insurers have been 'burned' writing aggregate coverage. The market assumes that the client has more knowledge of the risk than the insurer does. In addition, the market is reluctant to take on business risk in a competitive market. It's more difficult to underwrite than per-claim coverage, and has more of a potential for catastrophically high loss ratios. For these reasons, it has not taken off in recent years as some have expected. But we think aggregate protection is a growth area, particularly for Medicare ACOs."
- There is growing comfort with the use of captives; approximately half of the respondents are currently participating in conjunction with a provider-owned captive.
- Provider Excess for bundled or episodic payment risk has not taken off; fewer than 10% of respondents reported having policies in force for bundled payments.
"For one, provider excess for bundled payment contracts is not growing in number as quickly as global risk or shared risk contracts. Second, each bundled payment contract is unique and underwriters do not have industry experience figures or 'book rates' to rely on. Many buyers see bundled payment protection as a secondary concern to protecting large claims risk associated with their global risk contracts," Robinson added.
- There have not been many "mega claims" in the Provider Excess sector to date. While there have been a number of paid claims in excess of $5 million in the HMO Re space, there has not yet been a $5 million paid provider excess claim.
Robinson noted that Integro Re said expects a rebound in 2016. "Our survey respondents expect a 14% growth in premium from 2015 to 2016. Since survey respondents are typically optimistic about premium growth, we would temper those expectations slightly: Integro Re is projecting a 10% uplift. We see particular growth in Medicare populations and contracts that focus on specialty drug costs," he added.
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