Tips to Handle Renewals of E&O/D&O Policies

Oct 4, 2013

Your E&O/D&O renewal may be easy and simple or your claims and/or your financial position may create negatives for underwriters.  Here are some ideas to overcome those negatives.

Claims Situations:

Many E&O/D&O insurers are not willing to continue covering at a reasonable premium, or to take on as new risks, any organizations that have had significant claims actions filed on them.

Today’s litigation environment creates great difficulty for healthcare organizations since an organization innocent of any wrongdoing, may be named in legal actions simply because of an indirect relationship with a physician or another organization that is being sued.  Even when the claims’ actions are frivolous, you and the insurers still have to defend against them.

Solution:

When seeking renewal coverage from your current insurer or replacement coverage from other insurers, provide detailed information about any actions filed on your organization showing, when appropriate, the indirect or frivolous nature of the organization’s involvement in the action and its outcome.  Or, if an action had merit, state the methods adopted by the organization to prevent similar situations from recurring; e.g. new policy on UR practices, severing the relationship with Dr. Smith, etc.

Remember that your insurer’s underwriters are usually provided claim’s figures only and not what may have been the real story behind them, or what changes have been made to correct negative situations  It is up to you to point out whether any claim had merit or not, and what the organization has done to prevent similar siutations from recurring.

Financial Situations:

Insurers are not willing to renew coverage or accept new risks if the financial position of a health care organization is in doubt.  Adverse changes in the financial status of an organizaton can result in action being taken against Officers, the Board of Directors and/or the organization itself therefore, if the financials of the organization show deteriorating profits or low or negative net worth, many insurers will non-renew coverage, or refuse to consider the organization as a new account.

Solution:

If the financial position is in question, carriers want to see what actions, policies and/or programs management has implemented to overcome any negatives in the financial statements. A letter from the president or chief financial officer of your organizaton should state what your organization is doing to correct any significant reduction in income, increase in expenses or any major negative change in the financial statement.  This may be as simple as “negotiated increase in capitation income”,”new infusion of capital”, or “got rid of the Health Plan contracts that were draining us.”  But, at times, it may require showing the insurer that there was a complete reorganization with Board policies changes and an effective program to correct the financial picture.

Financial Situations: Insurers are unwilling to renew if the financial position of a health care provider is in doubt.

This especially affects the D&O coverage.  Adverse changes in the financial status of an organization can result in action being taken against the Officers, the Board of Directors and/or the organization itself.  Therefore, if the financials of the organization show deteriorating profits resulting in low or negative net worth, many insurers will non-renew coverage, or refuse to take on the organization as a new account.

Solution:  If the financial position is in question, carriers want to see what actions, policies and/or programs management has implemented to overcome any negatives in the financial statements.  This may be as simple as “negotiated increase in capitation income,” “new infusion of captital,” or “got rid of the Health Plan contracts that were draining us.”  But sometimes it may be a complete reorganization with Board policy changes and a thorough program to correct the financial picture.

Conclusion:  Whether non-renewal is due to claims or the financial position, it is vital for the organization to provide full explanations for whatever the situation is that is affecting their renewal of coverage when applying for replacement coverage.

There is usually a way to overcome each of these situations. It is important that you work through a good broker that understands how the carriers react to any situation.  Your broker must also be creative enough to overcome carriers’ objections and get the coverage placed.  It can be done.

One of our purposes at McPhee & Associates is to share the vast amount of knowledge and experience we have gained in our 30 years in business.  We hope you find this information helpful.

Susan Kattoo

Executive Vice President
McPhee & Associates