Increasing Telehealth risks could be good news for Captives

As telehealth continues to reshape the landscape of healthcare delivery following the COVID-19 pandemic, it’s been linked to an upswing in medical malpractice claims. This trend is complicating an already challenging insurance market, making it increasingly difficult for buyers. However, as these challenges mount, a vital solution is emerging.

Telemedicine risks are contributing to a harder market.

The surge in telehealth services, while beneficial in maintaining healthcare access during lockdowns, has also led to a surge in claims. Chris Zuccarini of Risk Strategies Co. Inc. points to the significant risk associated with telehealth, especially concerning the over-reliance on non-physician personnel leading to an increase in misdiagnoses.

Against this backdrop, the medical malpractice insurance market grapples with several challenges. Premiums and deductibles are rising, insurance capacity is shrinking, and jury verdicts exceeding $10 million are becoming less of an exception. These combined pressures are pushing the market towards stricter underwriting discipline, according to Pete Reilly of Hub International Ltd.

Insurance rate increases, ranging from 5% to 20%, are causing distress. Also alarming is the trend of insurers decreasing their capacity, as higher layers get replaced by lower ones. Amid these challenges, the increased claims from the rapidly growing telehealth sector are attracting significant concern.

Could group captive insurance be a viable alternative?

With these mounting pressures, the insurance industry needs innovative solutions – captives could be the answer. Captive insurance companies, owned by the insureds themselves, offer a degree of stability and continuity in a market where traditional policy rates are increasingly unpredictable.

For smaller organizations, a group captive can be attractive. In this structure, a number of companies share their risks and rewards, allowing for more control over insurance costs and risk management without the vast resources required for a standalone captive.

However, Westwood President, Michael Richards, advises caution with group captives. “I’m wary about advocating for participation in a group captive unless it’s a closely held organization by parties that are in the same industry.” He said. “As a member, theoretically you are responsible for everybody’s losses, so the group must have well defined underwriting guidelines and be extremely particular about who they allow into the group.

The single parent captive alternative

On the other hand, larger organizations may find the establishment of a single parent captive more beneficial. In this model, the parent company owns and controls the captive insurer, allowing for tailored insurance policies, direct access to reinsurance markets, and the retention of underwriting profits.

For those who are new to captives, a protected cell captive or segregated cell captive, may be the best way to start. Organizations can jump in pay an entry fee to somebody who’s already got everything set up, as they would with a group captive, except in this instance, they are protected against claims on other members.

Then if they are comfortable with captives, after five years or so, they might want to start a single parent captive and manage everything themselves. “So the type of captive you choose, really depends upon where you sit on the experience, education, and comfort level with a captive insurance structure,” said Richards.

With the rising risks from the telehealth expansion, captives, be it group, protected cell or single parent, might be what the industry needs. As commercial agents, understanding these alternatives and their potential benefits is crucial in navigating the complexities of the hardening medical malpractice insurance market, to guide your clients towards the most effective solutions.

For more information on Captives, contact Michael Richards below.