Court Ruling Set To Impact Insurance Costs for Schools & Non Profit Organizations
On Tuesday August 28th, 2012 U.S. District Court Judge Frederic Block ruled the statute of limitations didn’t automatically disqualify a sexual abuse case against Poly Prep Country Day School even as some allegations date back to 1966. It’s well documented that NY State has one of the countries strictest statute of limitations for sexual abuse and molestation claims.
If the 40 page ruling stands it opens the doors for other potential victims to come forward and press legal action. According to the recent Wall Street Journal article by Sophia Hollander, the case against Poly Prep has been carefully followed as the impact could be wide spread.
Why then do I assert that insurance costs will be impacted? Simple; if insurance carriers begin to see an uptick in sexual abuse & molestation claims, forget merits for a second, just pure cases reported, premiums are going to rise. If the underwriters sense the NY Legislators in Albany will mollify plaintiffs and weaken the statute of limitations, more cases will be open, which will translate into more sexual abuse and molestation claims, which translates into higher losses for insurance carriers. Finally, as insurance carrier’s losses increase they need to raise insurance premiums to off set these losses.
For insurers, and ultimately buyers of liability insurance such as nursery schools, private schools, charter schools, and religious organizations, it’s very difficult to assess the final cost of an abuse and molestation claim. Sexual abuse and molestation insurance claims tend to get their initial reserves set low, and then watch the cost of the claims rise as time goes on. This is called loss development; as time grows so does the cost to administer, defend, and ultimately settle the loss.
Insurance carriers can predict through actuaries the number of sexual abuse and molestation insurance claims they can expect in a given year as the historical data tends to be accurate. If the laws change in favor of the plaintiffs allowing more cases and thus more liability claims to move forward the losses on this class of business will increase, perhaps dramatically. This will move their actuarial tables resulting in higher loss trending and thus the need for more premiums. The carriers won’t wait for the claims to start rolling in to raise rates, it will happen much sooner, perhaps as early as 1st quarter 2013.
There are macro events that happen in the insurance industry that affect both carriers and customers alike in one fell swoop. The key for any nursery school, private school, charter school, religious organization, or non profit is to find line items on their own P&L that they can impact. Our favorite is workers compensation insurance as that is rich in opportunity to lower costs though protocol. For purposes of this article our intent is to simply make you aware of this potential macro trend that may ultimately drive your costs for sexual abuse and molestation liability insurance.