Amid the backdrop of increasing scrutiny and societal awareness around sexual abuse litigation, insurance carriers are reviewing their portfolios for potential Sexual Misconduct Liability (SML) exposure. Consequently, non-renewals, exclusions, and policy restrictions for SML-related incidents are becoming more frequent.
This article explores how organizations can secure a robust standalone policy and improve their risk mitigation against SML-related exposures (opens a new window).
Developments within SML standalone coverage
Exclusions and policy restrictions are increasing for insureds in multiple industries, such as religion, education, leisure, transportation, and healthcare. And many organizations across the US discover too late that their general liability policy contains restrictions, leaving them exposed when they need protection most.
Previously, coverage may have been ‘silent’ or included as an additional sub-limit for very little cost, which is often inadequate for the exposures involved. Changes in insurers’ appetites are forcing insureds to explore standalone SML options alongside their other insurance renewals.
Standalone SML coverage is designed to:
Provide financial protection for legal defense costs
Cover settlements and judgments related to allegations
Support affected parties with resources for healing
Help implement preventative measures and training
However, standalone SML insurers recognize that simply providing insurance isn’t the optimal method of operating in this space, nor does it make a positive difference for their clients. In response, insurers can provide additional, complementary risk management resources and crisis response services – helping enhance organizational safety of their insureds.
Keeping pace against evolving risk exposures
SML is considered a severity class, not a frequency class. While organizations – regardless of size – may go decades without a claim, they should remain fully focused on their evolving exposures in this space.
For example, an educational institution may have constructed a thorough abuse prevention and risk management plan in 2015. However, in the following decade, the development and integration of online video software, such as Teams and Zoom, has reshaped learning for individuals and classes. It is imperative that existing policies and procedures are remodeled to ensure they are ‘fit for purpose’ to counter this new digital exposure and create the safest possible environment for their students.
Furthermore, there is a growing use of AI in SML-related incidents, typically involving the use of ‘deep fake’ imagery – a development which would have been completely unheard of 10 years ago. For SML risks, it is crucial businesses consider all technological exposures to ensure they have safety nets in place to prevent potential online abuse and grooming.
How to approach a renewal with your broker
Before engaging with insurers, business leaders must be prepared to provide as much risk exposure and risk management information as possible. Attaining affirmative coverage and safeguarding the future of your organization will require an increased level of scrutiny of your organization from insurers.
Typically, alongside the submission itself, underwriters will request evidence of all policies and procedures surrounding abuse prevention and how they are enforced across your organization – regardless of how complex and large your operations are.
Telling your safety story can completely transform how underwriters view your risk exposures. A thorough, proactive approach can demonstrate you care about all aspects of abuse prevention and will be beneficial in obtaining optimal renewal options in a difficult coverage class.
Warning signs for underwriters
When reviewing your operating policies and procedures, underwriters will be concerned if businesses display any of the following tendencies:
Exhibiting complacency and assuming abuse incidents will not occur because background checks are conducted on employees.
Lack of robust preparation to deal with potential future incidents.
Reliance on historical claims history or successes from similar entities as a safeguard against future incidents.
Lack of willingness for organizational development, learning, and improvement in case of previous incidents.
Underinvestment of both time and financial support into abuse risk management.
What does good practice look like?
Good practice involves displaying a company-wide robust and ongoing commitment to abuse prevention. This is achieved through both policies and their implementation, with clear standards set for appropriate interactions with all members of society – particularly minors and vulnerable adults, both in person and online.
Underwriters are keen to see strong policies in the following areas:
Training standards
Insurers want to understand the frequency of and how your employees are trained against SML-related risks. Are staff trained to look out for warning signs of grooming and abuse? Comprehensive and repeated training on abuse prevention as exposures evolve – with continuous reviews and enhancements – should also be established.Continuous improvement
Underwriters appreciate insureds who are proactive and habitually looking to learn and improve. In the eyes of insurers, crafting an abuse prevention plan and ‘holding it on file’ is insufficient. Policies and procedures should be consistently reviewed and revised. Organizations serving vulnerable groups should consider having a dedicated team to monitor and control protection efforts, while implementing continuous enhancements.Employee screening
A thorough hiring and screening process for all organization-associated individuals should be established – regardless of ‘status’. It is important you hold all people affiliated with your company, such as employees, contractors, and volunteers, to the same high standards. It is also advantageous to show you repeat background checks regularly, as many available background checks have a limited lookback.Remedial action
If you have experienced an SML related incident or claim, underwriters will want to see lessons learned, any remedial actions taken, and a thorough, immediate investigation into how this incident occurred. In the aftermath of an incident, organizations conducting review and reformation of their policies and procedures, plus consultation with an external abuse risk management provider, can access more favorable quote options.Reporting standards
Evidencing strong reporting capabilities is pivotal in SML-related insurance discussions. You should seek to instill a strong, open reporting culture, and organization-wide knowledge of how to report incidents and suspicions – that holds all individuals, regardless of seniority, to account. Organizations should implement clear and accessible methods for employees, volunteers, and the public to report concerns, including red flag behavior, transgressions, or suspected/actual abuse.
Policies and procedures must outline these methods in detail, specifying the reporting chain of command and expected timelines for raising concerns. As confidentiality is a crucial factor that may limit whistleblowing, you could consider an anonymous internal reporting option to protect the identity of reporters, or a third-party hotline to facilitate the reporting of potential incidents.Mitigating third-party exposure
Organizations must also consider their potential third-party exposures. Leaders should not disregard or underestimate vulnerabilities to maintenance/ construction contractors on site or hiring facilities out to external companies. To counter this, policies and procedures should be brought in line to mitigate specific threats. Businesses should also consider what contractual requirements they issue third-parties with to ensure they are adequately covered.
Find out more on how to conduct an SML renewal here (opens a new window), or by contacting a Lockton London Casualty team member.
