Best’s Commentary: Expansion of Child Victim Compensation Laws could Have Negative Affect on Insurers

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--

The expansion of child victim compensation laws across the United States has potential to impact the reserve positions of insurers with general liability exposure to schools, religious institutions and municipal entities, according to a new AM Best commentary.

A new Best’s Commentary, titled, “Expanding Child Victim Compensation Laws Could Adversely Affect Insurers,” cites a possible increase in claims and litigation that could significantly affect insurers that specialize in providing coverage to academic, religious, daycare, and municipal entities, as well as other childcare employers. This scenario may be elevated in New York state, which enacted legislation to expand the statute of limitations governing the timeframe under which victims can seek civil relief for sex abuse allegations.

In addition to New York, 16 other states and the District of Columbia have similar laws taking effect in 2019; an additional three passed legislation in 2019 to broaden the statute of limitations.

Vicky Riggs, senior financial analyst, said the changes in these laws are likely to increase litigation, and mentioned that coverage issues have some similarities to the wave of asbestos & environmental claims that continue to affect some insurers’ reserve levels.

“Both areas have very long latency periods, extending years if not decades, significantly increasing the risk of litigation,” Riggs said. “The settlement amounts awarded are unpredictable, leading to uncertainty and challenges in establishing reserves.”

Insurers will have to deal with marked increases in frequency of claims, which may lead to significant increases in defense cost containment expenses. Many insurers will face operational challenges with locating exposures that extend beyond 20 years as the technology and data storage procedures were very different.

The report also notes that these types of laws could affect negatively the ratings or rating outlooks of insurers with past and present exposure to these types of risks in states that have approved laws extending statutes of limitations. To the extent that AM Best perceives the impacts to be outside of risk tolerances, “it could be a factor in our rating considerations,” the report states.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=287920.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.