4 Key Trends Driving Employer Health Care Costs in 2024

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

Amid ongoing inflation pressures, employees and employers alike can expect their health care costs to increase in 2024. Global professional services firm Aon reported that health care costs for employers will grow by 8.5% in 2024 (to more than $15,000 per employee), nearly double 2023’s figure. In line with those findings, the Business Group on Health’s 2024 Large Employer Health Care Strategy Survey predicts a 6% increase in health care costs in 2024.

All signs point to health care costs continuing to rise in 2024. This article outlines the primary drivers of health care costs and ways that employers plan to manage them.

Mental Health Challenges

Employees’ mental health concerns and needs, such as depression, anxiety and substance use disorder, undoubtedly rose during the COVID-19 pandemic and continue to linger amid its aftermath.

Consider the following findings from the Business Group on Health’s survey:

  • Three-quarters of employers (77%) reported an increase in mental health concerns among employees in the aftermath of the pandemic, compared to 44% in 2023.
  • Nearly one-fifth of employers (16%) anticipate an increase in mental health concerns in the future.

Employees and employers alike will continue to notice a prolonged impact of mental health challenges. In response, employers are expected to continue to expand access to mental health support and services, and many plan to provide more options for support and reduce cost barriers to care. Organizations may also explore manager and employee training to recognize mental health issues, anti-stigma campaigns and flexible working arrangements so employees can discreetly seek mental health care during regular working hours.

Pharmacy Costs

In 2024, pharmacy costs will continue to impact employers significantly. In addition to high-cost drugs, relationships with pharmacy benefits managers (PBMs) are also a key concern for employers.

The Business Group on Health’s survey revealed the following about prescription drugs and pharmacy costs:

  • Employers experienced an increase in the median percentage of health care dollars spent on pharmacy, from 21% in 2021 to 24% in 2022.
  • Most (92%) employers were concerned or very concerned about high-cost drugs in the pipeline, and 91% were concerned or very concerned about the pharmacy cost trend overall.
  • Nearly three-quarters (73%) of employers say finding more transparency in PBM pricing and contracting is a priority, and 58% say they want to see additional reporting and better provider quality measurement standings.

To address rising drug costs, employers may implement pharmacy management strategies. These could include prioritizing transparent PBM practices (e.g., requesting detailed reports, auditing PBM services, requiring compensation and pricing disclosures and negotiating contract terms) and plan design changes to address costly medications and treatments (e.g., prior authorization, step therapy and sites of care management).

Cancer Treatment

Preventive screenings were a critical health care component disrupted during the pandemic, according to the Business Group on Health. As a result, employers are anticipating more late-stage cancers among workers.

Consider the following survey results from the Business Group on Health:

  • Fifty percent of employers report cancer is the number one driver of health care costs, and 86% say it’s among their top three drivers.
  • Half of employers (53%) will offer a cancer-focused center of excellence approach in 2024, with an additional 23% considering this strategy by 2026.

In response to rising cancer care, employees may encourage advanced screening measures and maintain full coverage of recommended prevention and screening services. Employers are also monitoring oncology clinical advancements (e.g., biomarker testing and immunotherapies) and helping guide employees to high-quality care to improve health outcomes.

Health Care Delivery

Health care innovations, specifically on-site or near-site clinics and virtual care, gained popularity during the pandemic, and demand is starting to level out. However, such types of care continue to be critical for employees as they prioritize primary or preventive health care.

The survey by Business Group on Health discovered the following views about health care delivery:

  • Fewer employers thought virtual care would significantly impact health care delivery in 2023 (64%), compared with 2021 findings (85%). Regardless, 2023’s figure is still relatively high and above pre-pandemic survey results.
  • Employers’ number two priority for 2024 is implementing more virtual health opportunities. In addition to expanding, they’ll evaluate partnerships and consider vendors that can integrate with others.
  • Roughly half of employers (53%) offered on-site clinics in 2023, and the same figure is expected to do so in 2024, which likely signals a plateau in the offering. Some employers have migrated to a hybrid or remote work environment, reducing the need for health services at the workplace.

It’s no surprise that the necessity of virtual health care peaked during the pandemic. Moving forward, more employers are looking to expand health care offerings to better support primary care and mental health. It comes down to prioritizing employee health outcomes.

Summary

Heightened health care costs are likely to continue impacting employers for the foreseeable future. Looking ahead to 2024, many employers are focusing on impacts related to mental health, medications, cancer and health care delivery. To combat rising costs, employers are focusing on improving employee health outcomes, reducing unnecessary services and prioritizing prevention and primary care.

Additionally, it may be advantageous for employers to focus on benefits education and employee communication. The goal is to help them understand their benefits and the best ways to utilize and maximize them. Many employees are looking for ways to stretch their hard-earned dollars further, and employers can step in to provide that much-needed guidance. In turn, employer efforts focused on preventive and proactive health care can help curb health care costs.

Contact us for more employer-sponsored health care resources.

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The Industry Impact of Medicare Drug Price Negotiations

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

The Biden administration recently unveiled the first 10 prescription drugs subject to Medicare price negotiations. The Medicare Drug Price Negotiation Program—part of the Inflation Reduction Act (IRA)—is the Biden administration’s latest effort to combat rising health care costs. According to a Kaiser Family Foundation survey, more than 60% of the 65 million people on Medicare take prescription medication, and 25% take at least four prescriptions. Medicare drug price negotiation aims to lower out-of-pocket costs for millions of seniors and offer savings for taxpayers.

The first round of Medicare Part D drug negotiations will begin this year, with the new prices becoming effective in 2026. Over the next four years, Medicare plans to negotiate prices for up to 60 Part D and Part B drugs—and up to an additional 20 drugs every year after that. This article outlines the potential impacts of the Medicare Drug Price Negotiation Program on the health care industry.

Overview of Medicare Drug Price Negotiations

Under the IRA, the Medicare Drug Price Negotiation Program allows the federal government to negotiate directly with drug manufacturers to improve access to some of the costliest brand-name drugs. Many Medicare Part D enrollees depend on medications to treat life-threatening conditions, such as diabetes and heart failure, but may not be able to access them due to costs.

The following Medicare Part D drugs will be the first ones subject to these negotiations:

  • Eliquis, for preventing and treating blood clots
  • Jardiance, for treating diabetes and heart failure
  • Xarelto, for preventing and treating blood clots; risk reduction for patients with coronary or peripheral artery disease
  • Januvia, for treating diabetes
  • Farxiga, for treating diabetes, heart failure and chronic kidney disease
  • Entresto, for treating heart failure
  • Enbrel, for treating rheumatoid arthritis, psoriasis and psoriatic arthritis
  • Imbruvica, for treating blood cancers
  • Stelara, for treating psoriasis, psoriatic arthritis, Crohn’s disease and ulcerative colitis
  • Fiasp/Novolog, for treating diabetes

These 10 drugs are among the highest costs in total spending in Medicare Part D. In fact, Medicare enrollees taking these drugs paid a collective $3.4 billion in out-of-pocket costs in 2022 to obtain them. However, according to the Centers for Medicare and Medicaid Services’ (CMS) guidelines, if a biosimilar enters the market and finds substantial buyers, the agency will cancel or adjourn negotiations for the corresponding name-brand drug listed for negotiations. For example, two biosimilar versions of Stelara are set to launch in 2025. If they are successful, the CMS will no longer be able to negotiate a lower price for Stelara.

Pharmaceutical companies have until Oct. 2, 2023, to present data on these drugs to the CMS. The CMS will then make initial price offers in February 2024, which will start the negotiation process. Negotiations are scheduled to end in August 2024, with the new prices becoming effective in January 2026. However, several pharmaceutical companies have filed lawsuits to stop the Medicare Drug Price Negotiation Program. Some of these lawsuits argue that the IRA’s price negotiation process violates the U.S. Constitution by allowing the federal government to impose its preferred price unilaterally. According to legal experts, it’s unclear whether these lawsuits will be successful since Medicare is a voluntary program for drug companies. However, these lawsuits could delay the timing of Medicare drug negotiations.

Impact of Medicare Drug Price Negotiations

Medicare has been setting prices for services as well as physician and hospital payments but has not been allowed to be involved in pricing prescription drugs, which Medicare started covering in 2006. Therefore, allowing Medicare to negotiate drug prices could have a significant impact on the health care industry. While the first 10 drugs subject to price negotiations are used by only 9 million Medicare beneficiaries, the CMS plans to negotiate prices for 50 drugs by 2029. These 10 drugs include some of the most expensive for Medicare, costing a combined $50 billion in 2022; however, the impact of Medicare drug price negotiations may be slow at first but grow with time.

Short-term Impacts of Medicare Drug Price Negotiations

The initial impact of the Medicare Drug Price Negotiation Program may have muted financial impacts on manufacturers and the federal government, at least for the first round of negotiations, according to analysts. This is largely due to factors that impact the revenue and profits of the 10 drugs scheduled for negotiation. For example, many of these drugs currently face competition from other branded medications or patent expirations, which will allow generic alternatives to hit the market. Additionally, some of these drugs do not contribute significantly to pharmaceutical companies’ businesses, so any decline in drug sales may have little impact on a company’s overall business and profitability.

Moreover, Medicare Part D plans (prescription drug plans) and pharmacy benefits managers have already negotiated rebates for the first 10 drugs set for negotiation. Further, many of these drugs come with manufacturer discounts, decreasing their prices well below the list price. As a result, the negotiated prices for these first 10 drugs may not be significant or reduce what the federal government currently pays for them.

Long-term Impacts of Medicare Drug Price Negotiations

While the commercial impact of negotiations may be limited for the initial list of drugs, this could change in future rounds of negotiations. In 2028 and beyond, Medicare drug price negotiations will begin to target Medicare Part B drugs, which cover more specialized medications that are administered by health care providers rather than pharmacies. Many of these drugs offer fewer rebates than the ones currently listed for negotiation. Additionally, some of these drugs are biologics, which will likely have a more significant impact on drug companies because they are much more expensive and have a greater impact on the earnings and growth of these companies.

Pharmaceutical companies claim that the drug price negotiations will curb the development of new drugs. As a result, Medicare drug price negotiations may result in pharmaceutical companies altering their drug development strategies over time. However, according to the Congressional Budget Office’s estimates, only a few drugs would not be developed each year because of Medicare drug price negotiations.

Impact on Individuals

Due to the high costs of these prescriptions, many Americans are forced to choose between paying for vital medications or buying food and other necessities. While some individuals may save money on their prescriptions because of price negotiations, the Medicare Drug Price Negotiation Program aims to lower overall Medicare costs. By doing this, the Medicare program and taxpayers could see significant savings. Moreover, starting in 2025, the IRA will deliver further relief to Medicare beneficiaries by limiting their drug spending to $2,000.

However, the impact of drug price negotiations on individuals not receiving Medicare is currently unclear. Some experts believe that by reducing how much drug companies can charge Medicare beneficiaries, they will increase prices for privately insured individuals. Others believe that Medicare drug price negotiations may enable private health plans to negotiate for lower drug prices for the medications they cover. Additionally, Medicare drug price negotiations could incentivize pharmaceutical companies to lower listed gross prices for medications, which could lower out-of-pocket payments for privately insured individuals.

Employer Takeaway

Medicare drug price negotiations allow the federal government to negotiate prices for a limited number of drugs to lower out-of-pocket costs for millions of seniors and offer savings for taxpayers. While the drugs scheduled for negotiation are among the most expensive, it will likely be some time before the impact of these negotiations is seen. Even if the negotiated prices do not result in large savings for the federal government and taxpayers, Medicare beneficiaries may still experience some savings. The ultimate savings will likely depend on how successfully the federal government negotiates prices.

Contact us for more health care resources.

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Strategies for Identifying and Resolving Gaps in Benefits Offerings

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

In today’s competitive employment landscape, many organizations recognize that employees are their most valuable asset. To attract and retain top talent, employers must go beyond competitive salaries and create holistic and meaningful employee benefits packages that address diverse workforce needs.

Understanding and addressing any gaps in employee benefits is crucial for employers who aim to create an engaged, supported and satisfied workforce. Well-rounded benefits packages often translate to enhanced employee well-being, boosted retention rates and a positive work culture.

This article highlights proactive steps employers can take to assess and identify gaps in employee benefits offerings.

Employer Considerations

Identifying gaps in benefits offerings can be a complex task, as it requires a careful assessment of employee preferences, trends and organizational resources. Consider the followings strategies for identifying and addressing these gaps:

  • Review existing benefits. Start by reviewing the current employee benefits package. While taking inventory of benefits, organizations should assess if they offer the basics (e.g., health insurance, sick and family leave) or anything unique compared to competitors or other employers in their industry. This is also a good time to review benefits utilization to better understand if there are any benefits that employees do not or rarely use.
  • Analyze employee demographics and specific needs. Demographics, such as age, gender and marital status, can influence employees’ preferred benefits. Recognize that those needs can shift over time, so this is an ongoing exercise.
  • Gather employee feedback. Conduct surveys, focus groups or collect feedback through other methods to gather information and opinions directly from employees. Employers could inquire about employee satisfaction with existing benefits, what they value most and if there are any benefits they feel are missing from their package or that could be improved.
  • Benchmark against industry standards. Research industry standards and best practices to understand what benefits competitors, and similar or local organizations provide. This can help employers identify any gaps in their offerings compared to competitors.
  • Explore emerging trends and employee preferences. Stay informed about employee benefits trends. Current trends include flexible work arrangements, mental health support and student loan assistance. This is also the time to consider employee feedback results and reported preferred benefits.
  • Prioritize benefits based on budget and resources. While employers may be faced with a long list of attractive or preferred benefits, the reality is that they must also consider organizational finances and resources to determine the feasibility of new or different offerings. It may be helpful to prioritize the benefits that would have the most significant impact on employee satisfaction and overall well-being.
  • Communicate changes effectively. Employers should ensure clear and effective communication with employees when introducing or modifying benefits. Education is critical to utilization, so employers should clearly describe any changes, provide their rationale and explain how benefits changes align with employee feedback, emerging trends or organizational goals.
  • Monitor and reassess. Benefits needs and preferences change over time, so it’s important for employers to regularly monitor the utilization and effectiveness of offerings. If drastic changes were made, checking in with some employees to gauge their feedback could be worthwhile. Lastly, keep the conversation going with employees to keep a pulse on their preferred benefits and reassess available options to ensure they meet evolving needs.

Summary

Savvy employers continually evaluate their existing benefits, gather employee feedback, benchmark against industry standards and strategically address any identified gaps. By periodically reassessing benefits offerings, employers can ensure they remain competitive in the labor market and meet the evolving needs of the workforce.

By taking a proactive approach to understanding needs and preferences, organizations can create benefits packages that truly support current and prospective employees. This concerted effort can lead to increased workplace engagement and satisfaction, and, ultimately, organizational success.

Contact RISQ Consulting for additional employee benefits guidance.

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What Employers Say About the Future of Employer-sponsored Health Benefits

By Casey Kirkeby, Strategy Consultant

Employer-sponsored health benefits have faced several threats over the past few decades, but just like hard-working employees they protect, they still endure and remain the primary method of coverage today.

One of the most impactful changes has been the introduction the Affordable Care Act (ACA). The Employee Benefits Research Institute (EBRI) recently published a report examining the ACA’s impact and other government health care solutions on employer-sponsored health plans. The study interviewed 26 benefits executives from various industries whose organizations covered over 1.2 million individuals and spent more than $6.5 billion on benefits in 2021. Their data reflected that both employers and employees still viewed employer-sponsored health benefits as an important feature of the employment relationship. Who would have though, right?! While this public option doesn’t guarantee ongoing success and stability, it will hopefully help shield employers from future challenges like legislative policy changes, economic difficulties and labor market shortages. Just like any good relationship, the employer/employee benefit relationship takes hard work, trust, and transparency.

As health care costs rise, employers are looking at any option to control costs. One arrangement that has been quite popular in the Lower 48 is the ICHRA (Individual Coverage Health Reimbursement Arrangement). Since it’s inception in January of 2022, many employers have adopted the ICHRA, directing their employees to private exchanges so that the employee is able to make plan design decisions for themselves apart from the traditional one-size-fits-all model. There are important considerations to take into account before an employer jumps to this model and the process is still clunky, but it can be a good fit for some employers. However, employers and employees have been slow to embrace the ICHRA because it lacks control over healthcare costs and creates additional administrative burdens that the employer has to absorb.

Another survey conducted by the National Business Group on Health concluded that most employers plan to continue offering health benefits to their employees as part of their overall compensation package. Specifically, the survey found that 92% of large employers offer health benefits and expect to continue doing so in the future, with an increasing focus on virtual health and digital solutions.

Employers are always exploring different ways to control costs, such as offering high-deductible health plans, Wellness Programs, Employee Assistance Programs surrounding mental health, and incentivizing employees to use cost-effective providers. But for now, employers remain confident in their ability to provide affordable health benefits to employees as an important attraction and retention tool.

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Stronger Hurricanes to Put More Properties at Risk

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

Over 13.4 million properties not currently exposed to hurricane-force wind damage will face increased risk over the next 30 years as climate change propels more intense storms, according to new research from First Street Foundation.

“Compared to the historic location and severity of tropical cyclones, this next generation of hurricane strength will bring unavoidable financial impacts and devastation that have not yet been priced into the market,” said Matthew Eby, founder and CEO of First Street, a nonprofit research and technology group.

First Street’s models also estimated the average annual loss due to tropical cyclone damage rising to $19.9 billion, with about $1 billion in higher exposure in Florida alone.

Other regions that face lower exposure now will be even more at risk in the future, First Street warned. The study projected losses in the Northeastern United States to increase by 87% over the next three decades as hurricanes track further north.

“The northward increase in hurricane activity may significantly impact buildings that have not been built to a code that considers the wind speeds they will likely face over the next 30 years,” researchers said. “Additionally, the count of properties with any average annual loss from wind will increase by about 55%, with about 2.2 million newly-impacted properties by 2053.”

The total number of storms isn’t expected to change, but the intensity will, according to the report. Historical evidence already illustrates rising risk: The proportion of major hurricanes (Categories 3, 4, and 5) has quadrupled since the 1980s, from 10% of all tropical cyclone events to over 40% today. First Street attributed the change to rising air and sea-surface temperatures fueling storms, as well as increased moisture levels in the air and shifts in wind patterns.

“Hurricanes affect communities within the United States more frequently and severely than other natural disasters,” said First Street in the report. “As a result, tropical cyclones have caused a total of $1.194 trillion (consumer price index-adjusted) in losses in the United States between 1980 and 2022, with an average cost of approximately $21 billion per event.”

Understanding evolving risk can help insurers set property rates more accurately, assist communities in developing resiliency plans and allocating resources, and give property owners information on how to better protect themselves and their homes and businesses, First Street said.

For more risk management news and insights, contact RISQ Consulting today.

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The Trendiest Benefits for 2023

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

There’s no denying that employees’ needs have changed over the past few years. As such, employers can offer benefits to meet evolving worker needs shaped by lingering effects of the COVID-19 pandemic, a tight labor market and rising inflation. Many workers are paying more attention to their benefits and wondering how to stretch their dollars further.

Benefits have always been crucial for attracting and retaining top performers. For 2023, employers are uniquely positioned to offer more than just a health care plan, including holistic benefits, resources and perks that today’s workers most need. This article highlights benefits that are likely to be popular in 2023.

Voluntary Benefits

It’s no secret that health care costs in the United States have risen sharply over the past two decades and will likely continue to increase. Health care affordability is top of mind for employers and employees alike. As employers search for ways to manage their health care costs, some are considering voluntary benefits as a strategy to round off their offerings. A rising number of organizations recognize that voluntary benefits are advantageous to employees and their families—and many come at no cost to the employer.

Consider the following popular secondary benefits employers are offering:

  • Accident insurance
  • Critical Illness
  • Hospital indemnity insurance
  • Disability insurance
  • Life insurance
  • Identify theft protection
  • Pet insurance

Voluntary benefits can provide value to employees without raising an employer’s costs, making them powerful tools for attracting and retaining top workers.

Financial Wellness Benefits

Many employees are feeling financially strained due to record-high inflation. Not only will inflation impact employees’ decisions about benefits, but it may also result in a need for financial wellness education and guidance.

However, financial wellness benefits must go beyond only offering educational resources to be impactful. Organizations can boost their attraction to today’s workers by offering the following types of desired financial wellness benefits:

  • Retirement plan options with matching contribution
  • Health savings account contribution
  • Flexible spending account contribution
  • Financial planning assistance and coaching
  • Lifestyle spending account
  • Transportation benefits
  • Employee discount or purchase program
  • Financial reimbursements (e.g., tuition or student loan repayment plans, caregiving support funds and professional development stipends)

With any of those offerings, education will remain a necessary component to increase employee utilization. Employers are uniquely positioned to help employees understand the importance of these benefits and can help them increase their financial literacy with additional resources and tools.

Health Care Full Premium Coverage

As health care costs continue to skyrocket, some employers choose to pay 100% of employees’ monthly health care premiums. For reference, the Kaiser Family Foundation reports the monthly average for employer contributions in 2021 was 83%. This type of benefit is more common in small organizations. Fully paid health plans could be a key differentiator for workers weighing their employment options.

Family-friendly Benefits

Family-building benefits are becoming increasingly popular with employees, as they inclusively support the unique and complex ways individuals and couples build their families. Employers are also focusing on ways to support reproductive health care. Such benefits can provide employees peace of mind as employers demonstrate their emotional and financial support for employees’ decisions to build a family.

Additionally, many employers are increasingly prioritizing parental leave. According to Mercer data, 70% of employers are already offering or planning to offer parental leave in 2023, while 53% are providing or planning to provide paid adoption leave. Adoption and surrogacy benefits are also on the rise, in addition to access to fertility treatment coverage.

To round out family-friendly benefits, large employers are also considering on-site childcare or access to backup childcare services.

Summary

Organizations can start optimizing benefits packages by evaluating employee preferences and thinking about ways to improve offerings or tailor them for their workforce. To ensure offerings and investments will resonate with employees, organizations should consider surveying them first. It’s important to keep a pulse on employees and see what they find most valuable and necessary for their overall well-being as lives continue to be impacted by COVID-19, inflation and any other personal challenges.

Reach out to RISQ Consulting to learn more about trending employee benefits.

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War Exclusions and Cyber Coverage

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

Wars can cause widespread devastation and emotional turmoil among affected communities. These conflicts may also result in significant losses for impacted businesses. Yet, securing adequate insurance coverage for damages stemming from acts of war could prove particularly challenging. In fact, war exclusions are commonly found within commercial insurance policies. Although these exclusions are fact-specific and often vary between policies and insurers, they generally state that damages from “hostile or warlike actions” by a nation-state or its agents won’t receive coverage. Such exclusions were created to help protect insurers against potentially systemic losses that may arise amid attacks by governments, their militaries or associated groups.

Cyber insurance policies are no exception to war exclusions. However, the rise of nation-state cyberattacks and the increased instances of international cyberthreats have posed questions regarding how these exclusions should be interpreted in the realm of digital warfare. Additionally, recent court cases and insurance industry adjustments have both broadened and narrowed the scope of war exclusions, thus further muddying the waters for policyholders.

Considering the continued expansion of digital exposures, the complexities of cyber coverage and the evolving policy language surrounding war exclusions, businesses must think proactively when evaluating their insurance programs for proper protection against cyberwarfare. This article provides more information on war exclusion developments and related cyber insurance implications, as well as best practices businesses can use to better safeguard themselves against nation-state cyberattacks.

Court Case Developments

In recent years, court cases regarding insurance claims filed for damages resulting from the 2017 NotPetya cyber incident have narrowed war exclusions as they pertain to digital warfare. Specifically, a New Jersey trial court’s 2021 ruling in the case of Merck & Co. v. ACE American Insurance Co. determined the insured’s “all-risk” property policy should provide coverage for damages caused by the alleged nation-state incident, highlighting that the policy’s war exclusion failed to include language on digital warfare.

The NotPetya incident involved a series of global ransomware attacks that targeted thousands of systems and hundreds of companies across several countries, costing billions of dollars in damages. The majority of the attacks occurred in Ukraine shortly before the country’s Constitution Day, leading cybersecurity experts to believe the incident was a politically motivated event perpetuated by the Russian government. In addition to Ukraine, affected countries included France, Italy, Poland, Germany, the United Kingdom and the United States.

Merck & Co., a U.S. pharmaceutical company, was among the companies impacted by the incident. The company reported damages to nearly 40,000 of its computers, totaling $1.4 billion in overall losses. Although the company’s $1.75 billion all-risk property insurance policy offered coverage for damages resulting from the destruction or corruption of computer data and software, its claim for the incident was denied. The company’s insurer, ACE American Insurance Co., cited the policy’s war exclusion as justification for denying the claim, categorizing the incident as an act of hostility on behalf of the Russian government.

Following the rejected claim, Merck & Co. filed a lawsuit and took its insurer to court. The court ultimately ruled in favor of the insured, explaining that the policy’s war exclusion wording didn’t specifically address digital warfare, causing the insured to reasonably believe that the exclusion only applied to losses resulting from traditional, physical acts of hostility.

The court also emphasized that, with nation-state cyberattacks on the rise, the insurer should have changed the policy’s language to clearly incorporate digital hostilities within its war exclusion if it wanted to negate such coverage. Because it failed to do so, ACE American Insurance Co. was ordered to pay out the insured’s claim.

Insurance Industry Developments

In response to the previously mentioned court case (and similar rulings), insurers have made various adjustments to protect themselves from facing unanticipated claims and subsequent losses related to cyberwarfare. Primarily, insurers are increasingly apprehensive in selecting policyholders, thus utilizing more extensive application processes and requiring insureds to provide detailed documentation on their cybersecurity practices. Furthermore, insurers are exploring ways to ensure their policy language—namely, the wording within war exclusions—provides clear and consistent guidelines for what is and isn’t covered, particularly in the scope of digital warfare.

Global insurance industry leaders have also adopted initiatives aimed at addressing coverage concerns related to cyberwarfare. For example, global insurance marketplace Lloyd’s Market Association (LMA) recently introduced four new coverage exclusions for insurers to consider. These exclusions, which were designed specifically for standalone cyber insurance policies, contain varying restrictions regarding protection against losses caused by digital warfare—ranging from no coverage whatsoever to limited coverage for incidents that fall below certain thresholds.

Insurers across the globe can adopt these exclusions directly or use them as a reference point for crafting their own specific policy exclusions. These exclusions are intended to help insurers possess greater certainty in determining possible cyberwarfare liabilities and broaden the scope of war exclusions as a whole. Yet, it’s important to note that the LMA’s exclusions may still present clarity issues and misinterpretation concerns regarding the extent of coverage provided amid various incidents.

After all, some industry experts have argued these exclusions’ introduction of ambiguous terms and use of vague guidelines for identifying attack attribution could lead to further coverage confusion. In addition, it’s unclear whether they will create conflicting or overlapping coverage complications when applied within wider insurance programs.

As a result, it’s critical for insurers and insureds to openly communicate about policy definitions and specific coverage capabilities, especially as it pertains to protection against digital warfare. Such communication will help ensure both parties are on the same page, minimizing potential issues when claims arise.

Cybersecurity Best Practices

Apart from fostering open communication with their insurers about coverage for losses stemming from digital warfare, it’s also vital for businesses to take steps to prevent and mitigate these losses. Such steps may also reduce potential insurer apprehensions when it comes to providing adequate coverage for damages caused by cyberwarfare.

Businesses can leverage the following best practices to help avoid and effectively respond to nation-state cyberattacks:

  • Understand specific exposures. Different businesses have varying digital exposures to nation-state cyberthreats. Therefore, it’s best for businesses to assess their specific operations and determine their likelihood of being targeted by foreign attackers. Senior leadership teams and trusted IT professionals should be actively involved in conducting these assessments. From there, businesses should adopt security measures and digital procedures catered to their particular exposures.
  • Have a plan. Cyber incident response plans are essential for businesses across industry lines. These plans establish timely response protocols for remaining operational and mitigating losses amid cyber incidents. Successful incident response plans should outline potential cyberattack scenarios (including those involving foreign attackers) and methods for maintaining key functions during these scenarios, as well as individuals responsible for doing so. These plans should also help determine when to contact external parties (e.g., law enforcement, legal counsel, IT specialists and insurance professionals) for assistance in investigating and resolving cyber incidents. Plans should be properly communicated and routinely reviewed through various activities—such as penetration testing and tabletop exercises—to ensure effectiveness and identify ongoing security gaps. Based on the results from these activities, response plans should be adjusted as needed.
  • Utilize proper security software. A wide range of security software can help businesses better detect and deter nation-state cyberattacks. Essential software to consider includes network monitoring systems, data backup and encryption services, antivirus programs, firewalls, multifactor authentication capabilities, endpoint detection products and patch management tools. Such software should be utilized on all workplace technology and updated regularly.
  • Follow government guidance. Lastly, businesses should ensure their cybersecurity practices align with guidance from applicable government agencies, such as the Cybersecurity and Infrastructure Security Agency (CISA).

Conclusion

In summary, digital warfare has become a growing concern amid expanding nation-station cyberthreats. By understanding how their insurance policies will respond to losses stemming from cyberwarfare and taking action to minimize these losses, businesses can successfully navigate this evolving risk landscape.

For additional insurance guidance and solutions, contact us today.

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Nonstandard Auto Insurance

This article is from RISQ Consulting’s Zywave client portal, a resource available to all RISQ Consulting clients. Please contact your Benefits Consultant or Account Executive for more information or for help setting up your own login.

 

When a driver buys auto insurance, the insurance provider will make a calculated risk by agreeing to cover them. In exchange for coverage, the driver pays the insurance company an insurance premium (typically monthly, semiannually or annually). This premium is based on various risk factors, including age, marital status, credit history, vehicle type and driving history. Sometimes, if a driver has significant operating risks, they may not be able to be covered as part of standard, low-risk insurance pools. As a result, they may be required to buy nonstandard auto insurance.

However, needing nonstandard auto insurance isn’t as uncommon as you might think. According to research from Verisk, a data and analytics company, 20% of premiums paid for auto insurance are for nonstandard policies. Other industry experts say this number could be as high as 40%.

While the average nonstandard auto policy won’t look much different from a standard plan, it often costs more overall. Nonstandard policyholders often find it a bit more challenging to find affordable coverage. Keep the following general guidelines in mind when getting coverage.

 

Who Typically Needs a Nonstandard Auto Policy?

There are a handful of groups of people who would typically need to purchase a nonstandard auto policy. One group includes drivers with major traffic violations or other significant operating risks on their records. A driver might earn this designation if they:

  • Are under 25 years old
  • Carry an SR-22 certificate, which certain states impose on drivers who commit certain driving offenses
  • Have a tarnished driving record with numerous infractions for reckless driving
  • Have had a DUI or OWI charge
  • Drive a vehicle with a salvage title
  • Have previously driven uninsured or underinsured
  • Have a poor credit rating (most states allow insurers to consider credits when setting your rates)
  • Carry a foreign license or have no driving record in the United States
  • Have a high risk of accidents

Outside of this group of high-risk drivers, other individuals may need to purchase a nonstandard auto policy if they have a luxury vehicle, racecar or another type of vehicle that has a higher risk of theft or large losses.

These indicators show an insurer that, statistically, this driver may be more likely to have another high-cost claim or accident that the insurer would need to pay for on the driver’s behalf. Since the driver is now a greater cost risk to the insurer, they will have to compensate for that risk by charging the driver a higher premium. Every insurance company is different, which is why it’s important to work with a qualified agent to determine what type of coverage may be necessary. 

 

Differences Between Standard and Nonstandard Policies

The primary difference between standard and nonstandard auto insurance policies is their cost. Nonstandard policies are offered only to drivers with the highest risk of causing accidents or filing significant claims on their policies. The higher cost that comes with the policy is designed to cover the additional cost and more frequent claims filed by these drivers, on average.

Some insurers don’t offer nonstandard policies, which might force drivers who have been newly classified as nonstandard to look for coverage from an entirely new insurance carrier. Still, nonstandard auto policies will generally contain all the coverage options available to regular drivers, and an agent can help a driver customize a policy to fit their needs.

 

Residual Market Auto Insurance Policies – Coverage for the Highest Risk Drivers

At times, some drivers will have such high operating risks that they will be unable to obtain insurance through even a nonstandard plan. To still get the coverage you are required to carry, they will have to obtain coverage through the residual market. The residual market is a pool of drivers managed by state regulators. When you apply for coverage through the residual market, your state’s Department of Insurance will then require one of the insurers operating in their borders to issue you a plan. Residual market plans are often among the most expensive policies available and should only be considered as a last resort.

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