Historically, the care sector chases premiums down, with providers simply switching to the cheapest insurer. While most sectors do this, care does it to unprecedented levels. However, this has led to companies purporting to offer cheap cover, only to cease trading after losing underwriting support or being closed down by authorities such as the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA).
When this happens providers are left high and dry with no other option than to purchase insurance elsewhere, often leaving them thousands of pounds out of pocket. Those unlucky enough to have claims outstanding could be in a ruinous position financially if they have to cover the costs of claims and client redress themselves.
There remains a number of insurers registered in offshore territories and invariably beyond the control of the FCA or PRA. Providers using these must understand the commercial risks involved.
It’s obvious that providers want to look at cost, but that must be combined with the financial security of the insurer, the covers being proposed, the service and the care sector knowledge of the broker. In many cases, anything which appears to be too good to be true is exactly that.
Providers should seek a stable, reputable, mainstream insurer that is both authorised and regulated by the FCA or PRA. One that offers a comprehensive level of cover that is good value for money.
As a result of decreasing profit margins two large insurers, Ecclesiastical and Hiscox, have both exited care insurance. Those remaining are scrutinising care businesses carefully before offering cover and setting premiums at realistic levels, but providers can still get good value for money by bearing in mind the following.
Aside from obvious variables, such as location, how many people they support and employ, and how many premises they operate from, providers’ claims histories will impact premiums and affect a policy’s value for money.
Insurers need to stay profitable just as care businesses do, so it is unsurprising that providers making lots of claims (eg for small things they could fix relatively easily and inexpensively themselves) will experience premium increases at renewal. In fact, these increases could ultimately cost more than any claims payments made, meaning they end up out of pocket. ‘Serial claimants’, those making a number of claims in any one insurance year, may also struggle to find cover in the future.
Of course, providers are entitled to make a claim if damages sustained are covered under the terms of their policy. However, assess the financial impact this can have on premiums before doing so. Making lots of claims can be detrimental to a provider’s relationship with insurers, which, if well-built and maintained, can be highly rewarding in the long run.
The main issue for insurers of care businesses, generally, is the increasing number of liability claims – predominantly arising from injuries to staff and care of clients. In 2001, the average care business had one liability claim every 16 years and the average cost of a liability claim was less than £7,000.
In 2015, the average care business is making one liability claim every seven years and the average cost is now skewed to an average close to £25,000 (more than a 200% increase in numbers of claims and a 350% increase in costs over 14 years). The net effect is insurers’ costs have increased substantially in a short period of time. The only way they can return a profit and maintain their presence in the market is by increasing premiums.
It is projected that the volume of claims will increase and this, in large part, is why both Ecclesiastical and Hiscox have pulled away from underwriting care businesses.
If any claim is made, care businesses should document clearly the measures they have put in place to prevent recurrence. This goes on record and can positively affect premiums, leading to value for money at policy renewal.
Providers that claim strategically when there is a genuine need can get excellent value for money from their insurance policies via a combination of support from insurers, expertise in managing repairs and helping to keep their premiums low.
When it comes to claiming, providers can also get good value for money by choosing a policy on a ‘claims occurring’ basis. This means it meets claims when the event causing the loss occurs during the policy period irrespective of when the claim is made. This is opposed to a ‘claims made’ policy, which only meets claims when the claim and the event are reported during the policy period. This gives providers residual cover after policy lapses or is cancelled and has little effect on premiums; something for nothing almost.
Quality standards, or risk management, is vital in today’s market. A good risk management strategy helps prevent things going wrong, reducing the chance of having to make a claim and lessening the risk for insurers. This can ensure good value for money for providers when it comes to premiums.
Insurers now carefully assess the way in which businesses:
- Manage and minimise risks, such as those relating to service users, staff and visitors.
- Review aspects of these risks through risk assessments and how regularly these are carried out.
- Develop risk management programmes and implement additional measures should claims occur.
- Implement staff training programmes.
Interestingly, a recent survey of our care clients highlighted that those which were Investors in People (IiP) accredited had fewer liability claims. Claims made by businesses with IiP accreditation tend to be settled quicker and at a lower cost than those originating from businesses without it.
Care providers should start by carrying out a risk assessment to identify potential hazards, then set about implementing measures to mitigate these hazards. These include policies, procedures, management changes or structural modifications to premises. Providers can minimise their own business risk profile by considering:
- Employers’ liability (risk of injury to staff): Protect staff by ensuring all are well trained, alert to the risks they face and are able to inform management and others about them.
- Buildings maintenance: A scheduled maintenance programme will help mitigate damage to buildings and prevent deterioration, which could lead to damage or injury.
- Regulatory issues: Comply with the Care Quality Commission (CQC), or your national regulator, ensuring all standards are met and procedures followed. Evidence this through meticulous documentation. If a regulatory issue does occur, be sure to carefully design and action a response to the issues raised, usually referred to as an action plan, and meet all deadlines. Share this information with insurers, don’t wait for them to ask for everything – don’t forget CQC information is in the public domain. Are all staff up-to-date with the latest news from the appropriate regulator, familiar with the duty of candour and CPR trained? Have the implications of the Care Certificate been considered? Do customers (residents) have Do Not Resuscitate orders, if so where are they? Do night and weekend staff know of the orders’ existence?
- Liability to others: Manage risks to others with common sense, whether it be using two members of staff to dispense medicine or displaying a ‘wet floor’ sign to prevent slips and falls or similar. Common sense goes a long way and the logic of common sense can be followed by the Courts.
- Contents: Insure all contents on a ‘new-for-old’ basis, make sure values reflect this – a carpet that cost £1,000 ten years ago would probably cost closer to £2,000 today. Store valuable items securely and carry out regular electrical testing to keep things safe.
- Theft: Reduce the risk of allegations of theft claims against employees by ensuring they report any ‘gifts’ from service users or whether they are in possession of sensitive personal information (eg PINs). Rotate care staff between residents or customers as a matter of course.
- Business interruption: Be sure to manage ongoing risks so if something does happen the impact on the normal running of the business is minimised. Always try to have alternatives, a backup electrical supply is a good one. Is electricity supplied down a single set of wires? If so, is there a backup option or would it be wise to consider an emergency generator?
- Employment practices: Ensure employment contracts are up-to-date and always take advice, especially before taking disciplinary action, as employment law is fraught with complexities. Create an open culture where management and staff communicate freely to mitigate the risk of tribunals.
- Water damage: Minimise the risk of leaks by having roofs and pipes inspected regularly and, in the case of care homes, use cut off (push down) taps to prevent residents leaving taps running and not only wasting water, but potentially causing damage.
- Vehicles: Ensure staff and any equipment they take with them on visits are appropriately insured. This is especially true where vehicles are used for transporting service users (this would constitute as ‘business use’ in insurance terms). Ensure company vehicles have a valid MoT, are taxed and portray the business and its quality of service positively.
By identifying risks, documenting measures implemented to mitigate these risks and communicating these effectively with brokers and insurers, providers can get good value from their insurance policies by keeping premiums as low as possible. Those struggling with risk assessments and risk management would be advised to appoint a professional risk consultancy.
This article is an introduction to the thought-processes needed to make businesses better. Something we all need to strive for and can achieve. Don’t be defensive – all too often I hear the words ‘we really tried’ or ‘I never thought this could happen’ followed up with ‘I don’t how see we could have done anything else’. If this reflects your views ask others -friends, family and professional advisers – you may find they have had similar experiences.
When it comes to insurance premiums, there are variables over which care providers have little control, but sound risk management, well-trained and engaged staff and well-run businesses will lead to higher CQC ratings and, in turn, insurance that is both comprehensive and excellent value.
How do you manage your insurance premiums? Add your views below and read Claire Ferrari’s tips for improving your quality rating. Subscription required.