I had a meeting with a new client yesterday. The lady we met opened the meeting by telling us that she had told her husband about the conversation she was going to be having; his response was to offer to get some beers in for later in the day – because he thought she was very likely to need a couple after spending a day talking about insurance…
The meeting was about which type of Sexual Misconduct Liability (SML) program she should buy and, depending on that decision, what we would therefore need by way of information for a submission. The initial discussion was about whether to buy forward looking coverage only or whether to try to buy prior acts coverage as well. This entity, like many institutions with a long history of doing excellent work with children, is sadly also more familiar than it would like to be with sexual misconduct liability claims. Note: for hopefully obvious reasons, you will understand why I won’t mention my customers by name.
When deciding whether to buy prior acts coverage or not, one of the key issues to consider is how far back you can reasonably expect an insurer to go in prior acts terms. No insurer will knowingly take on definite claims and anyway, insurance becomes progressively less efficient the less risk transfer is involved – so prior acts coverage for SML, because of its history, can pretty rapidly get to a point where it suits neither buyer nor seller.
But there is a point in the past – and it differs for every SML risk owner – after which SML became better understood. It was from then on that ever-more effective risk management began to be applied and the incidence of misconduct fell dramatically. It is from this point that SML can be insured efficiently. Of course, you avoid the angst of trying to identify that point in time if you just decide to buy a no prior acts program but not everyone has that luxury (usually for budgetary reasons) and there are drawbacks with those programs too; the main one is that, because of how long it takes those who are abused to report their abuse, there is usually remarkably little value in SML premiums for the first (say) 5 years of forward looking coverage.
We had decided we were going to look for prior acts coverage – a decision that didn’t take long – and spent some time discussing the information we would therefore need. We then moved on to the other big issue that must be discussed when designing a SML program, whichever type of program you look to buy. This issue is how to handle claims.
The ‘claims conversation’ far too rarely happens – at all. Though this is unacceptable in almost every type of commercial insurance, it is simply not workable with SML; carefully designed and well-understood claims handling protocols are the foundation of successful SML programs. There are usually one of three problems with the ‘claims conversation’.
First, some buyers don’t think they need to have it; they believe that the whole point of the insurer’s ‘duty to defend’ language is to relieve them of the need to deal with claims. Fortunately, there aren’t too many SML insurance buyers who think like this but they are out there.
Second, many don’t know they can even have a ‘claims conversation’; they don’t realize that the ‘duty to defend’ language isn’t all that is available and they sadly also have no idea of the variability of claims handling expertise – even within the different claims departments of the same insurer.
Third, some think they have had the conversation when they really haven’t. It might be because they skate over the topic too vaguely, taking whatever assurances the insurer offers at face value; more likely – as was the case with this client – they genuinely believe they have. In the case of this client for example, they had worked extremely hard a few years ago to consolidate multiple policies for their different component parts into a single program and, not unreasonably, assumed the claims process would naturally follow the same consolidated logic. Latterly, they had come to realize that, until ‘who’ does ‘what’, ‘when’ from the first inkling of a circumstance to the final disposition of the claim and settlement (better than 95% of SML claims are settled) is understood, the ‘claims conversation’ hasn’t been had.
Of course, the real key to this conversation is ‘who’ is doing the ‘what’, ‘when’ – and particularly, how ‘what’ is shared between insurer and insured and each of their respective representatives.
I have found that a customer’s understanding of ‘who’ might be able to do ‘what’ depends on their past experience of handling SML claims – whether insured or not. Those who have never had to deal with a SML claim, personally or institutionally, probably need the most initial information; of those who have had many claims, some can’t be given any advice, while others are extremely keen to hear what is now achievable compared to what used to have to be tolerated. There is also a difference between those who have had a good experience of insured SML claims handling and those who have suffered the opposite; sadly there are rather more of the latter than the former.
The reality for all those handling insured SML claims is that it is necessarily a collaborative process. If you work with children, you know that the only satisfactory outcome of any such claim is that the brave kid who has finally come forward – even 20 years after the event – mustn’t be traumatized a second time and, because of this, if you insure this risk, you come to understand that reaching for the lowest economic outcome in every settlement is not a sustainable strategy.
So, this client had worked really hard to create an effective program from the placement point of view, which is much more than many others have done, but they hadn’t realized how much could still be done to improve claims handling.
Our client’s husband would, I suspect, have been surprised to see his wife’s excitement when we described the nature of the claims handling influence we said we thought she could have. Insurance conversations just aren’t meant to be that interesting… Now, there aren’t that many insurers willing to offer SML insurance and they vary considerably in how they deal with claims, so I am not saying we will overcome the idea that ‘my cheque, my decision’ will cease to be their standard approach any time soon.
That said, I hope the evening’s beer was sipped slightly more optimistically than it might have been before we met.