Child Sex-Abuse Claims Are a Growing Risk to Insurance Firms

State laws expanding the statute of limitations for child sexual-abuse claims pose a growing financial risk to insurance companies, said ratings firm A.M. Best.

Seventeen states and Washington, D.C., have laws going into effect this year that extend or eliminate the amount of time victims of child sexual abuse have to sue or seek criminal charges against their abusers, according to advocacy group Child USA. Some states, including New York, have created short-term windows during which victims can sue their abusers and the institutions they were affiliated with regardless of when the alleged abuse occurred.

Insurers that have written liability insurance policies for schools, religious institutions or municipal entities will likely need to increase the reserves they set aside to pay for claims, A.M. Best said in its new report, which will be released Monday. Those types of entities are at risk of increased claims alleging they were negligent in hiring or supervising alleged abusers.

Most businesses annually buy general liability insurance, which typically covers legal defense and damages if companies are found liable for property damage, injuries or other types of negligent acts. The policies usually include a maximum amount the insurer will pay and a deductible that the policyholder has to pay.

The report compares child sexual-abuse claims to asbestos liability because the claims can affect decades-old insurance policies and the settlement amounts can be difficult to predict. Asbestos claims were devastating for the insurance industry in past decades and will cost insurers an estimated $100 billion in total, according to A.M. Best.

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Two major U.S. insurers, Travelers Cos. and

Chubb
Ltd.

, said on recent earnings calls that they have added to their reserves because of uncertainty about sexual-abuse liabilities.

Travelers increased reserves in the first quarter by between $50 million and $100 million after New York’s Child Victims Act was signed into law this year. “If more states enact, we would react accordingly,” said Daniel Frey, the company’s chief financial officer, in an April earnings call. “It’s an ongoing issue in a number of states that we’re keeping an eye on.”

Chubb increased reserves in the fourth quarter “in response to the difficult environment around molestation and abuse,” said Michael Smith, the company’s chief claims officer, in a May conference call.

Travelers and Chubb are both set to report earnings Tuesday.

Small, specialized insurers could be especially at risk. A.M. Best downgraded New York Schools Insurance Reciprocal’s long-term issuer credit rating in June and changed its credit outlook to negative due to the potential for increased claims. The reciprocal didn’t respond to requests for comment.

The Roman Catholic Archdiocese of New York sued 31 insurance companies last month in anticipation that the firms will deny coverage of claims stemming from expected lawsuits following the enactment of the state’s Child Victims Act.

Write to Nicole Friedman at nicole.friedman@wsj.com

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