The Sexual Abuse and Molestation (SAM) coverage continues to be under stress. It is sobering to consider SAM claims are one of the most likely exposures that can financially wipe out an entity that works with children, the elderly and developmentally disabled individuals. Unfortunately, SAM risks and claims are not going away, and the market is evolving.
Top Ten Reasons Why the SAM Marketplace is Rapidly Changing
- Nuclear verdicts
- Social inflation
- Statute of Limitations (Opening of Windows)
- Size of SAM settlements (not just California)
- The recent hardening of the General Property & Casualty (P&C) market
- Domestic insurance carriers are unwilling to provide SAM coverage or cutting SAM limits
- More insurance carriers are moving to only providing Claims Made coverage for SAM
- The #MeToo movement calling out sexual harassment
- New SAM exposures with COVID-19 and closing of schools, churches and sports programs
- SAM claims and verdicts being paid under Professional Lines instead of SAM
What’s Driving Huge Awards?
Nuclear verdicts (runaway jury verdicts above $10 million in damages) and social inflation (jurors feel inclined to punish large corporations and public entities with lottery-winning awards). This is affecting all classes of businesses and lines of coverage. Attorneys, insurance companies and the public cannot make sense of where claims will close, causing real issues for insurance companies in reserving losses, pricing and profitability.
These SAM settlements are surpassing previous high water marks across the nation. One of the largest recent SAM verdicts was $40 million for one victim at a New York school. Others large settlements were $35 million, $25 million and many over $10 million.
Evolving Statutes of Limitations
Eight states have changed their SAM statute of limitations (Revival Legislation) or have pending legislation. For example, New Jersey’s SAM statute of limitations now allows reporting up to age 55, even after the window has closed. New Jersey’s prior SAM statute was 21 years of age plus 2 years.
Some experts forecast most states will go the way of Vermont and eliminate all SAM statutes of limitations. If history repeats itself, California saw an average of $1.3 million in new SAM claims when their SAM statute window opened in 2003. Recently, we have seen religious carriers advance retro dates from 2004 to 2020 without much notice.
The Casualty market is in a state of flux and seeing the largest rate increases of the past 10 years. Over the past year, more heavily in 2020, insurance carriers are restricting their capital, cutting limits, being very disciplined in underwriting and adding new exclusions like Communicable Disease. All of which are causing more domestic carriers to exclude SAM coverage.
Certain industries like Higher Education are still predominantly on an Occurrence form, and it is not feasible for them to continue down this path. Like the New Jersey statute change noted above, no carrier has loaded this length of exposure into their rates and can’t maintain that length of tail coverage, additional 32 years, provided.
Other Drivers of SAM Market Change
The #MeToo movement has been a very positive step towards social justice by bringing sexual harassment to the forefront and more willingness to file claims. In turn, this has created a greater focus on SAM claims and injustice.
Even with COVID-19 causing many churches, schools and sports programs to shut down or go virtual, diligence with SAM risk management still needs to be a continued focus. Even with no in-person contact, individuals are still at risk based on unsupervised online grooming. For example, students are often less supervised in their homes with online classes and parents at work; teachers, youth and coaches can still be in contact with students via text or online access.
We have seen several carriers pay out full loss limits ($10 million or more) on Directors & Officers (D&O) and Errors & Omissions (E&O) claims for an SAM-related incident, causing carriers to be concerned about being silent on SAM coverage or having an adequate exclusion.
Proactively Improving Your SAM Coverage
- Provide a complete and comprehensive application with details on any large claims or known incidents including what has been done to migrate issues for future claims
- Provide a narrative on SAM risk management improvements made in the past year
- Provide updated SAM Policies and Procedures including incident reporting
- Provide means to prove your SAM risk management is best-in-class or better than your peers
Positives within the SAM Market
- Voluntary compensation agreements have been a positive approach in many states. A recent example was with the Diocese of Richmond, which had an average of $125,000 in their claims
- We have one carrier willing to provide a 25% discount for SAM coverage for entities with proven sophisticated best-in-class SAM risk management
For more information on coverage, please contact:
Shawn McCall, CPCU & ARM
Risk Placement Services Public and Nonprofit