As much as SAM risk and SAM insurance are changing, the one thing that really needs to change isn’t.

The nature of sexual abuse and misconduct (SAM) risk is changing.  So too is how it is insured.  For the last 50 years, insurers have offered SAM coverage as part of a package, on an occurrence basis, and rarely allocated a specific premium to the risk. 

Insurers have no choice but to change their approach because of the high profile of SAM risk now, significant and growing losses from long past abuse, and the increasing frequency and severity of claims for current abuse.  SAM coverage has started to move to stand-alone, claims made policies, at significant premiums.

A more important change is that, until recently, insurers have had little or nothing to say about how SAM risk should be managed.  That too is changing because, though SAM losses are rare, they can be big, and every significant loss we have seen has involved one or more examples of poor, and even functionally non-existent, SAM risk management.

Most SAM risk managers we have spoken to agree with the need to improve SAM risk management.  Some see that how SAM risk has been managed up to now isn’t working, others see SAM risk changing, and plenty acknowledge insurers must respond to mounting losses.  Whatever the reason, most risk managers agree SAM risk management improvements are overdue.

Depending on the changes insurers require however, and how they seek to implement them, insurers seeking to drive SAM risk management change will likely have a far greater impact on organizations and risk managers than narrower coverage and higher premiums. 

Until recently, insurers have metaphorically stood back from insureds and their decisions about how to manage SAM risk.  They have offered coverage based on the failure to manage SAM risk well.  Now, however, some insurers are looking to reduce their exposure by saying they will only cover SAM events if SAM risk is managed a certain way. 

We have already seen two big problems with this new approach.

First, as few changes as insurers have so far required, we have already observed different SAM insurers insisting on directly conflicting SAM risk management requirements for the same insureds.  The result is confused risk managers unsure which changes to make and unable to buy one or the other – or either – insurance. 

And that’s just for the explicit changes insurers have started to require.  Explicit changes are specific requirements, such as insisting an insured perform a particular set of background and abuse registry checks, rather than leaving a risk manager to decide which background checks are appropriate to their organization’s context, including what they are legally able to do. 

Second is identifying and implementing the implicit changes insurers require.  Implicit changes involve new policy language, such as broader knowledge and shorter notice language (which are relatively easy ones to identify), which SAM risk managers must respond to by changing internal practices to ensure they will be able to meet new conditions of coverage. 

Given insurers have no choice but to try to drive SAM risk management improvement and risk managers agree changes are overdue, why are either of these approaches a problem?  The problem is that SAM risk management needs changing because of the current absence of SAM risk management data.  The absence of data means SAM risk management practices have yet to be measured, so best practices have yet to be identified, and ideas about what practices are best are subjective. 

In the absence of data, shifting who makes control decisions from risk managers to insurers doesn’t address the fundamental problem of subjective decision making.  Subjective decisions are flawed as often as they are sound and flawed decision making is the main reason SAM risk management needs to change.

To give credit where it is due, the insurance industry has unquestionably been an agent of positive risk management change.  Insurance as a measurement device has transformed many risks for the better.  Having watched the process with other risks, however, we also know the traditional path between ‘here’ and a new equilibrium between risk managers and insurers is neither quick nor easy.  Past transitions have been marked by strain between risk managers and insurers, slower progress than anyone wants, increased costs for everyone, and confusion.  The absence of data drives all of these; the opposite is also true. 

Until objective best practices are identified by credible data, SAM risk management can only improve slowly, along with the credibility of organizations managing SAM risk and SAM insurer profitability.  

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