Alternative models in hospital liability insurance

In view of the challenging economic situation, the demand for alternative models, such as self-insurance solutions in hospital liability insurance, is becoming more and more important – among other things due to the upcoming hospital reform.

Self-insurance options are particularly interesting because they enable a reduction in overall risk costs and an immediate liquidity advantage at the time of introduction. Especially in times of inadequate hospital financing, self-insurance seems undeniably attractive. A distinction is made between two types of self-insurance.

Types of self-insurance

Deductible

The deductible (SB) is the portion that the policyholder has to bear in the event of a claim. It is contractually agreed as an absolute or percentage share of the individual claim or of the aggregate loss expenses of an entire insurance year. The insurer grants premium discounts for the agreement of deductibles. A premium saving is always associated with a reduction in the insurance tax incurred on it.

Self-insured retention (SIR)

In addition to the classic SB, SIR solutions are also regularly requested, as this model can offer further economic advantages. The difference between SB and SIR is that, within the SIR amount, the hospital itself is responsible for examining the liability issue and for defending against unjustified claims for damages. In the case of an SB, on the other hand, the insurer takes over these tasks regardless of the amount of the claim. By handing over some of these tasks to the policyholder, the insurer's administrative costs for high-frequency claims are reduced and further savings on premiums are achieved. In addition, the hospital has the option of settling claims independently within the SIR limit. This allows it to act more quickly and efficiently. Risk management plays an important role here because it has a positive influence on the frequency of claims. At least in theory. But what does an SIR look like in practice?
 

Reviewing the requirements

Before a hospital decides on a SIR, a few questions need to be answered. For example, the hospital must determine whether the balance sheet viability and liquidity situation of the corporate structure and the individual subsidiaries are suitable for a self-funding model. Furthermore, the requirements for the compulsory insurance of doctors, possible insolvency risks and tax aspects with regard to non-profit status, among other things, must be examined. Sufficiently trained personnel must be available to check and defend against unjustified claims for damages within the SIR. Due to the long-term nature of the healthcare risk, claims processing must be ensured for many decades (30-year limitation period for personal injury plus processing and settlement time). Furthermore, external costs for lawyers or experts must be borne within the SIR itself. Once the customer has answered the various questions in the affirmative and opted for a SIR, the practical test follows.

Interaction: Hospital – Insurance broker – Insurer

The task of the hospital to take over the claims processing itself is regularly transferred to third parties such as the responsible insurance broker. Coordinated interaction is necessary for successful, speedy and uncomplicated processing of claims.

For example, it is important...

in claims management

to observe data protection regulations when transmitting and processing health data. Joint processes must be agreed, for example, regarding who is responsible for obtaining releases from confidentiality and data protection declarations from the claimant;

to ensure efficient processing of liability claims, so that, on the one hand, prompt and contractually compliant settlement is guaranteed and, on the other hand, payments and expenses in the SIR are transparent at all times. To make this possible, Ecclesia offers its customers the digital customer platform ecconnect, among other things;

to coordinate regular and ad hoc reporting between customer, insurer and broker, for example when particularly large or severe liability claims are involved that are likely to exhaust the SIR amount.

in the prevention of claims

to focus on avoiding claims at the customer's premises, for example by

proactively approaching patients who are likely to file complaints and thus be subject to claims. Close cooperation between quality, risk, claims and complaints management is essential for this;

learning from past claims. This should be done, on the one hand, by taking into account anomalies in individual claims and, on the other hand, at an aggregated level (assessments of trends and accumulations as an approach for risk/quality management, etc.);

conducting ad hoc and/or regular training and workshops on liability issues (such as information, documentation and burden of proof), insurance-related issues or communication issues (such as how to behave in the event of a claim or crisis).
 

In contract management

Always implement the deductible in line with the customer's individual risk situation, respond to structural changes (purchase/sale of subsidiaries, closure of stations, new or discontinued risks, etc.) and adjust the deductible accordingly;

responding to changes in market conditions (such as new insurers entering the market, changes in underwriting behavior) and, if necessary, adapting the contract design to new legal framework conditions (most recently, for example, § 95e SGB V: compulsory liability insurance for physicians);

to create provisions under commercial law for uncertain liabilities. Since hospital liability is a risk with an incurred but not reported (IBNR) claim pattern, professional provision reports are recommended that can support the creation of the hospitals' annual financial statements with an independent actuarial assessment.

Conclusion

In conclusion, SIR models can offer economic advantages and more leeway for hospitals in decision-making. The range of hospital liability insurers is still limited and the offers are partly limited with regard to specialist fields or individual risk situations.

To actually use the opportunities of SIR in practice, coordinated interaction between client, broker and insurer is required in claims, contract and risk management. It is important to regularly review the processes and contractual design, to tailor them to the individual customer and to adapt them to the customer's risk philosophy.

The Ecclesia Group, as a specialty broker for the healthcare sector, offers support on all these and other relevant issues and works with customers to develop an individual concept.