Reps and Warranties Coverage: It's Good for your Health(care)

It has been argued that Reps and Warranties Insurance is for the most part industry-agnostic. Reps and warranties insurance is underwritten on the quality of the due diligence and the structure of the Sale Purchase Agreement, which has many common themes regardless of industry.

As the market evolves, however, increasing competition pushes the industry to try and differentiate itself through specialties and niche markets.

Beazley has just come out with a new product that is very clearly geared toward the Healthcare market. They have overcome one of the most obvious hurdles in reps and warranties coverage in this sector, coverage for Medicare and Medicaid billing reps.

Historically, some brokers were able to fill this gap with comprehensive due diligence researching these risks from an insurance perspective. For instance, does the target have insurance that already covers some of these risks? Do they have a clean claims record? What checks and balances do they have in place? We have found this approach—along with a deep understanding of these risk areas and how they interrelate—has proven fruitful when used with our healthcare clients. However, even with this, and expert third party due diligence, a risk with any history on this issue has been a struggle to get coverage for.

Beazley is offering coverage for Medicare and Medicaid reps claims and even their own separate sub-limits. Additionally, they are reducing the requirements for third party diligence to get this done. It's not just Medicare or Medicaid that they are willing to look at either. Reps and warranties around False Claims Act violations, commercial payor actions, Stark Law violations and Anti-Kickback Statute violations are all on the table.

Here's what our healthcare practice recommends:

Before the current heightened focus on False Claim Act violation enforcement ushered in under the Obama administration, one could cover these risks, but only during a transaction with a reps and warranties policy. Then, as the scale of this risk grew, carriers became largely unwilling to cover these risks as part of a transaction.

However, simultaneously, Beazley pioneered coverage specifically for these risks—but only for insureds NOT engaged in a transaction. We are thrilled to see Beazley making this coverage available for reps and warranties coverage as well.

We have long thought that during a transaction is the time when coverage is most valued as buyers seek peace of mind that the revenue stream of their target acquisition is sound and based on proper billings. In addition, that by taking on the target's provider number, they will not be increasing their risk of a regulatory action.

I suspect Beazley will not be a lone front runner for long. Increased competition with the influx of new capital and the large amount of substantial healthcare related deals are pushing underwriters back towards healthcare but can everyone do what Beazley is doing?

As a reps insurer you have a couple of options. You can hire industry specialists on your M&A team, but that requires a substantial investment. You can partner with another specialist underwriting team in your company, if you have that resource. That method precludes underwriters whose wider company doesn’t include such departments.

As in all good capitalist systems, where one market leads, the others will follow. Hopefully this is the beginning of a trend, or at least of more specific market specializations within reps and warranties.

Either way, kudos to Beazley for breaking the mold.