P&C Podcast: The Complexities of Sexual Abuse and Molestation (SAM) Coverage for Nonprofits

Intro (00:00):
You're listening to the Alliant Insurance podcast, dedicated to insurance and risk management solutions and trends shaping the market today.

Kristen Handel (00:09):
Welcome back to the Alliant Insurance Services podcast channel. I'm Kristen Handel, and I am here to with Lisa Rodriguez, who is a Senior Vice President and Principal at Brown & Riding of the nonprofit division. Lisa has been in the insurance industry for over 25 years. She works on very complex management and professional liability placements in the nonprofit sector throughout the United States. We're excited to have her here today to join our team as we discuss some of the challenges that the nonprofits in New York City and throughout the country have faced when it comes to placing professional and abuse coverages. Welcome, Lisa. Thank you so much for joining us.

Lisa Rodriguez (00:55):
Thank you, Kristen. Happy to be here.

Kristen Handel (00:57):
I think we should start today with just understanding how we got where we are, why this is such a hot topic right now. Abuse and molestation coverage has always been a challenge to place just due to the complexity of the coverage, and the populations that it's meant to protect and the agencies it's meant to serve. But now it seems in the past few years there's an even heightened challenge, I should say, in protecting these agencies and protecting the people that they serve. Because from what I'm seeing, a lot of the standard market carriers have exited or there's some dipping their toe in some less risky agencies. But then there's also the non-standard market that's been there as a constant and provides different levels of coverage. But what do you think is causing that heightened awareness around this coverage from your perspective?

Lisa Rodriguez (01:56):
That's a great question. There's definitely a heightened awareness around this topic, and there are several factors that are driving this. Several of them, social awareness, the Me Too movement, Jeffrey Epstein; and then we've seen a lot of high profile cases in the news, Boy Scouts, coaches within universities, religious entities, those are a few of them. We've also seen a change within state statutes, statute of limitations when it comes to reporting. There's a definite lack of supervision within various pockets of industries. And then lastly, contractual requirements. All of those factors have definitely increased the awareness for the need to have this product.

Kristen Handel (02:39):
And so why do you think or what do you see when all of the standard market carriers, one by one, contract their limits, contract their coverage language or leave the market? How do you see that affecting our clients?

Lisa Rodriguez (02:54):
There's definitely a hole with a lot of the clients when they're working through their package policies. And so what we're seeing right now is a need to go out to market their standalone market capacity where we're able to either tier limits up and/or just do a full limit with the monoline abuse dedicated carrier. Essentially they're underwriting the risk based on claims history. We're going to factor in nature of operations. Depending on the risk, there are some that are a little bit riskier than others and we can talk about what those are. A lot of it drives around employee count and it's really important for clients to realize these markets are not going to be on a risk unless there has been background checks amongst all employees and/or volunteers that we're looking to cover into a policy.

Kristen Handel (03:43):
That's a good point to make. So, you're seeing that the organizations that have the strongest internal controls in place, not just state required or city required or program required controls, but going above and beyond, they're the ones that get the best terms and conditions, correct?

Lisa Rodriguez (04:02):
Right. The carrier is going to look at what sort of background checks are done, but they're also looking at what sort of loss control procedures they have in place, what risk management resources they're using. Those things, being aware and being able to prevent speak volumes when looking at an organization and how risky they are. While we're working with some of these organizations that have international exposure, carriers will not work with international background checks because they're not typically considered as strong in factoring in what U.S. checks are discovering. So, we are really depending on U.S. domiciled employees, volunteers with the appropriate background checks.

Kristen Handel (04:43):
And that makes sense. So, how would you handle the markets that you are seeing being the strongest players? Do you find challenges in the adoption and the foster services? Is that the most challenging placement at this time?

Lisa Rodriguez (04:59):
Absolutely. With the package markets, it may be a little bit different when you're going off of the GL professional liability, SAM package. When you're looking at a standalone abuse and molestation product, that is one of the harder classes and there certainly seems to be a bit more restriction when it comes to fostering adoption simply because the lack of controls in the in-home setting. And you might also see the situation of minor on minor and unfortunately, you're just not able to oversee that as an organization.

Kristen Handel (05:32):
That's where the devil's in the details. So, from a broker perspective, our job is to construct the most comprehensive coverage terms and conditions at the most affordable price. The standard market has still been more, if they're going to take a look at a foster adoption situation, the terms and conditions are somewhat more comprehensive. Now, in the non-standard market, do you find that those terms and conditions are pliable? Are they easier to amend? Does it depend on the carrier or the market? Does it depend on the relationship? What do you see there?

Lisa Rodriguez (06:10):
It all depends. So, when we're speaking about specifically foster and adoption, what the standalone abuse and molestation markets are comfortable in is perhaps removing those exclusions when we're over a certain threshold in limits on the primary package, otherwise it's going to be a bit more restrictive. So, having that primary base, when we're speaking about other classes of business, non-adoption, non-foster, we definitely are working with the abuse carriers to modify terms and get consideration on different retentions. Loss control is different amongst every market, and so some have higher thresholds on what they're willing to offer versus others.

Kristen Handel (06:50):
Switching gears a bit, how do your markets approach day camps, week camps, that could be a museum; a lot of museums offer summer programming. How do you see that market being affected? The primary markets are still looking at that type of risk, but sometimes we find the non-standard market to be more aggressive or provide higher limits at better terms and conditions. What is your thought there?

Lisa Rodriguez (07:16):
We're definitely seeing the standalone markets be a bit more aggressive in those sectors as long as they see the controls that are in place. There's definitely underwriting questions that go along to see what is your one-on-one, what is the oversight? Markets have been actually pretty competitive on those classes. For me as a broker, one thing that's very important that I look for is failure to supervise, because the claims that are coming are not always coming from the employees. Oftentimes, they might be coming from minor to minor in the camp, on the school bus, at the daycare, at the school.

Kristen Handel (07:51):
From working with clients in our risk control team, one of the areas that we press upon is most important is what are you doing to eliminate that one-on-one exposure? How are you controlling situations when kids go out to the playground or they're going on a bus or they're going to some sort of outside programming? How are you controlling that third party on third party exposure as one of the most important? And I see that some even standard market programs won't provide that coverage or provide that coverage term under their abuse and molestation policy. So, it's nice to be able to craft it if you can and when you can on some non-standard placement.

Lisa Rodriguez (08:35):
Right. And not all standalone abuse policies have that built into their form. So, when looking for your carrier, it's important to know that all papers are different and you can negotiate through those different scenarios.

Kristen Handel (08:49):
That's so true. How about exchange students? How do you see that being handled in the marketplace?

Lisa Rodriguez (08:54):
Essentially, we're looking more so at the staff than necessarily the students. And so if they are in the U.S., they're going to be treated like any other vulnerable. They're going to look at the controls with the staff, volunteers within the organization.

Kristen Handel (09:09):
And is it easy to place coverage for that foster family or the exchange family, I should say too?

Lisa Rodriguez (09:15):
It's definitely more of a challenge when we're working with the foster families. And so again, they're looking at it sort of in the same realm. So, when we're looking at excess, that's where we have a little bit more flexibility. Primary, right now, their best bet is within the package policy sector.

Kristen Handel (09:33):
And as we discussed, do you think it's mostly organizations working with children, or do you think it's any sort of vulnerable population including seniors or at risk adults?

Lisa Rodriguez (09:45):
Yeah, really any vulnerable situations. So, a couple of the industries would be those that work with mental illness, any sort of adolescence, transportation, daycare, schools and sports.

Kristen Handel (09:58):
It's interesting you say transportation. Can you expand on that?

Lisa Rodriguez (10:01):
Absolutely. We've seen several claims come out of buses and school aged kids in buses. And while a lot of buses do have a camera on the bus, we find that doesn't always capture what is going on in the bus. And so we've seen claims come out of transport with students in a bus.

Kristen Handel (10:22):
What is the best practice for an organization that hires a third-party transportation service? We usually see contractually that liability for the auto is covered and maybe a general liability, but it's very important that the organization addresses that abuse provision. So, indemnifying the organization for any act that might occur. Have you seen a big focus placed on that?

Lisa Rodriguez (10:48):
Well, just generally we've seen when there is some sort of contract between different entities and/or just contract requirements within the state or the school, we have seen additional insureds listed to protect them from the vicarious liability.

Kristen Handel (11:03):
That's definitely a good practice and something that needs to be addressed with organizations that hire third-party transportation because the exposure is there, as you mentioned. A lot of our clients that serve vulnerable populations or provide some service to the general public, they are getting their funding from cities, from states, from the federal government, and their funding sources usually want to be named as an additional insured, primary non-contributory, etc. They want to be indemnified, they want to be protected. Now, that does put challenge on the insurer because then we're indemnifying ourselves and then we're indemnifying a second party, and sometimes that second party, they're self-insured. So, we find that challenging. Do you find that within the non-standard market that there's anything around that situation that is unique to a non-standard carrier that they might be able to provide something that's extra to the client? You can eat up your limits with one claim indemnifying two parties.

Lisa Rodriguez (12:07):
It's pretty standard right now, and especially within the state of California and Oregon, where we're doing a lot of additional insured endorsements just for the vicarious liability of counties, perhaps schools or state. Because it is vicarious liability, we are truly protecting them just if they were named in conjunction with the insured. Depending on the carrier, we have been able to make a few modifications to make it more advantageous for the insured, but standard practice would be to add that vicarious liability endorsement.

Kristen Handel (12:40):
It would be nice. We see that challenge on the East coast as well and removing that indemnification back to the funding source would be helpful but that doesn't seem to be an option.

Lisa Rodriguez (12:52):
No, it really depends on the contract and oftentimes the funding source is not going to make that accommodation in the contract. So, we're certainly working through a few different things when they're looking for the coverage with the contract. And when we are quoting off of a contract requirement, we usually like to see that contract up front. It helps us mold the policy limits the way they need to be handled. And then also if there are other specific coverage requests, we've gone back and forth with various cities on large risks to get to a mutual agreement on the wording.

Kristen Handel (13:24):
Yeah, the contract always helps because that's truly what the insured is responsible for and not having it sometimes doesn't allow you the understanding of what that organization is truly assuming. So, I think that makes sense. Have you seen market retraction from a general limit availability on abuse and molestation?

Lisa Rodriguez (13:47):
Not on a monoline basis. I've definitely seen that within the package policies, and so I think this is where monoline has been tapped into a bit more within the last year. If anything, we've seen a few new markets come into play, but I say that with a grain of salt. Several of them are MGAs that are entering the space, so it's really important to know who they're tied to. Some of these new MGAs are tied to preexisting long standing products, meaning there might be syndicate overlap in London. And so ultimately, you may be blocking a market by going to two different MGAs, you may get better coverage from one or the other. So, just understanding the dynamics of those players is important. We have seen a new entry into this space where they share maybe the same lead but have other syndicates involved so they are considered a separate market. It has been evolving. So, I guess to answer your question, it seems that there's a little bit more capacity on the standalone basis and it's given us a bit more flexibility to build up limits, as needed. Sometimes we have to do it in various layers, but it's doable.

Kristen Handel (14:58):
And do you see these are claims made limits? Are you able to get an occurrence based?

Lisa Rodriguez (15:03):
Unfortunately, we cannot do occurrence based. And we get that question a lot because when we are doing excess over maybe a package, package is typically occurrence. We are always going to be claims made and so it's really important that the client recognizes they are getting claims made access over occurrence. They're not follow foreign policy so there's different triggers, different terms and conditions. And then oftentimes your excess market's going to put on a maintenance retention because they essentially are going ground up when they get involved. Not the cleanest way to get to the limits they need, but it's a solution to a contract requirement.

Kristen Handel (15:39):
And why do the carriers like claims made versus occurrence better?

Lisa Rodriguez (15:43):
That's a good question. I think historically when you're dealing with GL, it's always been occurrence and that's just where that marketplace lands. And because abuse and molestation was part of that product, it followed the same format. At this point, monoline has always been claims made and I don't foresee that going backwards. I hear a hurdle right now with occurrence. We talked about this in the past with the statutes of limitations in different states changing for example, the Child Victim Act. And so with occurrence, that's definitely causing a bit of a hurdle with a lot of these package markets because you're going back to when that claim occurred. And so claims are coming out of the woodworks, claims made essentially in real time.

Kristen Handel (16:26):
From a carrier perspective for sure. So, they can track what they have as a liability more so on that claims made policy than an occurrence.

Lisa Rodriguez (16:36):
Correct. When you look at abuse and molestation, it's always been a severity product over a frequency. And so with some of these changes we're having, I don't want to say it's a lot more of a frequency, but there's definitely been a bit more claims reported that would've been restricted based off of timelines now that several states have modified their statutes.

Kristen Handel (16:58):
Do you see that the market will soften at any time? As we absorb and get used to the changes to any statutes, and as our clients are more prepared from an internal protection perspective, do you think that you'll see more players from the standard and non-standard market come into the market?

Lisa Rodriguez (17:22):
I don't foresee a lot of markets jumping in. I could see where some markets have talked about maybe adding sub-limits to existing programs within other coverage lines. Because it is such a severity product carriers don't want to dip their foot in right now because there's so many other hard markets going on. It would be hard to add another severity product into that mix. But we do have a bit more capacity, as I mentioned, on the standalone product. So, we are seeing rates lower than what they were in the past and a little bit more flexibility with the negotiation, so it's been a bit more stable.

Kristen Handel (18:00):
I think that the biggest challenge I see now as a broker for my nonprofit clients or even ones that I talk to is there's not many markets. And when there's not a lot of markets to provide competition, it hurts the organizations from a rate perspective, from a limit perspective, from taking on new programs because then they're increasing their risk, but they can't get a higher limit to protect the agency. So, I do hope that as in a few years that you see some players that maybe left the market come back in and I think that would be helpful to all.

Lisa Rodriguez (18:36):
Yeah, I certainly think you're going to see that with the package space that's been putting in the restrictions right now. And monoline abuse and molestation is a bit more relevant these days because of the changes on the package end.

Kristen Handel (18:48):
Now, who are you primarily working with from the monoline perspective?

Lisa Rodriguez (18:52):
I'm doing a lot with Beazley and I'm also doing a lot with Miller, both London products.

Kristen Handel (18:58):
And then how do they handle U.S. based claims?

Lisa Rodriguez (19:01):
I haven't had any claims issues with them. I think with both have been very hands on.

Kristen Handel (19:07):
I think that's what the clients love to hear because they want to know when something does occur, it's handled well. And I think that's an important perspective.

Lisa Rodriguez (19:15):
Right. And they're definitely always willing to get on to a phone call right away to mitigate any potential catastrophe that's going to go along with that claim.

Kristen Handel (19:24):
That's great to hear. Do they offer risk control services as well?

Lisa Rodriguez (19:28):
They do, and with every carrier it's a little bit different and you may get different limits associated too. I would say both London products have probably one of the best risk management services that you can get out there.

Kristen Handel (19:40):
That's wonderful. Do you see them offering large self-insured retentions or deductibles, or is it customized to what the client wants, what their risk tolerance is? Are there any first dollar policies?

Lisa Rodriguez (19:53):
There's not first dollar policies, unfortunately, where the carrier's going to pay first dollar at this time. We do see a lot of negotiation going on with these deductibles and depending on what the client can afford, depending on what their financials are, what makes sense to them and their size. And we've been able to negotiate the retentions from where the carrier wants it to be to what it should be. And it's important with the retentions, a couple of the conversations we're going to have is their story reviewing their individual loss history and explaining their loss controls.

Kristen Handel (20:28):
I think it's also nice too when the carrier, even if they do place a per occurrence or a proclaim deductible, sometimes you can negotiate an aggregate so the client would understand what their max would be for that policy term. Do you find that on the standalone policies as well?

Lisa Rodriguez (20:45):
Yeah, it's per occurrence, but they do have their deductibles clearly outlined.

Kristen Handel (20:50):
That's great. And is it easy enough for the policies to provide the additional insured status, the waiver and subrogation, all those different terms and conditions that we need to provide to funding sources or program sources?

Lisa Rodriguez (21:05):
The waiver of subrogation is definitely a conversation to have case by case. Adding the additional insured, I haven't had a problem there. We'll say that some carriers may charge for it, others may not. So, when we know that there's going to be some sort of contract, that's why I'd like to have the conversation upfront and that we're rating based on that upfront. So, when they're ready to move forward, there's no surprises with any sort of additional premium comments to them by adding that vicarious liability.

Kristen Handel (21:33):
Well, I thank you so much for joining us today. It was very educational. I think this is such an important topic for all nonprofits throughout the U.S. today. I appreciate the work that you've done here and I hope to speak with you again soon.

Lisa Rodriguez (21:50):
Great. Thanks Kristen.

Kristen Handel (21:51):
Thanks for joining us.