In late 2012, Ecclesiastical withdrew from providing insurance for care businesses. In late 2013, Hiscox – who many had seen as Ecclesiastical’s natural replacement – also withdrew from the market place. Most care business owners are asking us why; what does care need to do differently; and what will the insurance industry do to help care businesses overcome the issues, whatever they are?
Understanding the situation
Before tackling any of these questions, we need to understand the background to the situation. If any care business was to buy their principal covers separately – material damage/business interruption; employers, public and products liability; malpractice; and legal expenses – the premiums would be substantially higher. We have always argued that the care sector has a far better claims experience than most other business sectors. The combined policies provided by brokers have enabled care businesses to buy insurance at a far cheaper rate than the market generally.
Most businesses with good claims records (few claims at a low cost in comparison to premium paid) expect their insurance to cost circa 0.6 per cent of their turnover, yet care has enjoyed premiums at a rate closer to 0.35 per cent, especially care homes. Unfortunately the risk management within care, weather-related claims and increasing litigation no longer enable care to enjoy this special status. Essentially, for care homes, it’s been very good for many years and it just can’t stay this way.
I have been asked to address these issues myself, not representing my company and I gladly do so. These are my own personal views following 25 years’ experience in the care insurance sector. They are my own views and no-one else’s.
Withdrawal from the sector
Why have Ecclesiastical and Hiscox withdrawn from the market? This is relatively straightforward and down to a combination of actual claims histories and actuarial projections (mathematical formulae that account for various scenarios to predict future losses (or profits)).
In Ecclesiastical’s case it has had to pay out more and more claims over the last five or more years than it had been receiving in premiums. Furthermore, in both Hiscox’s and Ecclesiastical’s case, the actuarial projections showed a considerably worsening environment for insurers. They will then have looked at the way care buys insurance and the competition this creates.
The reality of the market
Care as a sector chases premiums down, so quality insurers can often feel vulnerable to short-term market conditions. The two major insurers left are New India and Gable. New India is an insurer wholly owned by the Indian Government. As the new Indian Government is likely to privatise this business it poses an important question. Will New India’s management and shareholders be able to accept losses being made on an account operated in the UK? Then Gable, based in Lichtenstein, with no experience in the care sector, Will they be able to sustain the losses Ecclesiastical has suffered and Hiscox’s actuaries project? History reminds us of Balva, a Latvian insurer, which within months of becoming involved in the care sector went out of business and also Milburn and ERIC, two other insurers that have exited the sector.
The combination of a large section of care businesses chasing cheap premiums and the competition created by New India and Gable, coupled with losses incurred and projected to be incurred, has caused two of the UK’s main insurers to withdraw from the care sector. As a consequence care is experiencing a hardening market, where insurers offering insurance must do so at realistic premiums for the covers and services they provide.
A few questions for all the readers here, if you were an insurer, would you insure your business at the premium you have? If your answer is yes, is this a qualified yes? Are there any issues you would want addressed before insuring the business? If so, what are these? Do you use a zero hours contract? How do you believe this will impact on employers’ liability claims?
It is an interesting set of questions to ask yourself, not from a risk and insurance perspective necessarily, but in terms of how you could make your business better. Every claim takes time and resources away from frontline care.
What does care need to do differently? The answer is to manage risk better and this can be done in two ways:
1. Review the risks you face using risk assessments and, I would recommend, an external risk assessment company. Look at all aspects of your business, from the environment through to staff training; from relationships with customers or residents’ families through to regulatory compliance. What could you do better?
One area that has caused insurers many painful moments has been the increase in employers’ liability insurance claims, with an increasing number of employees having almost trivial incidents. I dealt with a claim for an employee, late for work, who slipped on a gravel driveway and claimed for £600,000 plus costs at £390,000 (remember lawyer’s fees are never cheap). Ultimately this was settled for far less, but for a trivial incident almost, in my opinion, of her own making, the employee cost this particular care home’s insurers some £250,000. This compares with an annual premium for all covers of less than £2,000.
Zero hours contracts of employment give rise to insurance claims, as injured employees are not paid when off work through injury. Effectively this working environment encourages employees to claim for minor incidents. If you use a zero hours contract, can you also include pay for periods of time off work due to a work-related injury or illness? If not, insurers have to factor that cost into their premiums.
2. Make sure records, such as those relating to incident dates and policy documents, are readily available and provide them to insurers quickly. If you don’t, you leave insurers with the option to refuse to manage or pay for claims. This means you may have to pay yourself.
We have found care businesses that are Investor in People (IiP) accredited make fewer employers’ liability claims. The claims they do make are settled at a lower cost than those made by care businesses that are not IiP accredited. Achieving IiP accreditation involves a simple series of steps that helps you think deeper about your organisation, and is built around making the most of your biggest asset – your people. It will make your business better.
The media profile of care is poor right now. However, there are outstanding care providers out there, whose excellent work is overlooked in favour of headline grabbing stories of poor care. When was the last time a positive story about care was given a high profile by the media, or even the Care Quality Commission? All care business need to work hard to rectify this. The opportunity to join care associations, share knowledge and reach higher standards is there and should be taken.
We all know budgets in the care sector are stretched to breaking point, but it is essential to provide the best staff training and management supervision possible. This will help keep claims to a minimum and improve your risk profile, improving your business and making it more attractive to insurers, not to mention potential customers. It will also help your business to save money in the long term too.
How will insurers help care businesses? Firstly, they will take on the risk at a fair premium. A fair premium is one which enables insurers to achieve a profit and the care business to enjoy the safety of good insurance protection. Then insurers need to survey more customer businesses.
Historically, the idea of insurers knowing and understanding the risks facing care businesses has been viewed by some as an invasion of their privacy, which can seem suspicious to insurers. Insurers have a wealth of experience in making businesses risk averse and understand likely future events. Care businesses and insurers working in partnership will produce a better environment for all.
Care businesses have been let down by insurers withdrawing from the market place and this is a great shame. However, insurers do not make these decisions lightly. It is because they are losing money and project they will continue to lose money.
We need to develop a partnership culture. The care industry is not dealing with media perception, nor accepting the actual risks it continues to face. I urge care businesses to work together through care associations to redress the media, and public, perception of care. It is vital to listen to people who can help make your business better, more caring and therefore less likely to make an insurance claim. Ultimately this will allow more time to concentrate on what you do well, the most important thing of all, caring for vulnerable people.
David Waters is Managing Director of Care Home Insurance Services and PrimeCare Insurance. email@example.com