If you haven’t seen the latest VJ Dowling report on the potential impact of Statute of Limitation changes on sexual abuse claims, you should try to get hold of a copy. Their thinking around the likely cost to the insurance industry of the resulting settlements makes interesting reading.
I have been involved with abuse risk since 2008. Much about abuse risk itself is unchanged but I now think how abuse risk will be insured in the future is changing. I say this because of what I am seeing on new and renewal applications in the market now.
Long story short, it seems that, like EPL and Cyber before it, abuse risk is in the process of being ejected from GL coverage. I suspect that ejection will be faster for abuse risk than it was for EPL or Cyber because of the potential costs described in the Dowling statute of limitation changes report. That said, I believe there are reasons for this likelihood that go beyond the costs of the statute of limitation changes.
For example, one reason is that, for years, carriers have only included abuse coverage in GL so they could write the packages of which GL is a part. 38 States started 2019 looking at changing their abuse statute of limitations, 16 have now done so, and 7 have included ‘look-back’ provisions. So many extended abuse statutes of limitation will give many carriers good enough reason to finally exclude abuse risk. Some have already started to do so.
Yet another reason is that occurrence-based GL doesn’t deal very well with the nature of abuse risk. For entities with abuse risk, of which there are many, it can be an existential risk. For these entities, it makes sense to look at more appropriate coverage anyway. The number of customers looking for stand-alone coverage has tripled this year. Of those looking for stand-alone coverage, the number now buying is over 50%.
As I see it, the problem is quite traditional. There is currently a lack of abuse risk capacity. Appropriate products, services, and delivery mechanisms need to be developed to encourage the development and effective maintenance of new capacity.
The primary challenge with developing these products, services and delivery mechanisms is that abuse risk has some quite specific characteristics. Many of these characteristics were evident in the $27.5m loss noted in the Dowling report, with which I was intimately involved. I think the solution to successfully insuring abuse risk in the future lies in dealing with those characteristics, characteristics insurance cannot address on its own.
If you would like to talk more about this challenge, and some ideas for addressing it, I would be happy to discuss further.