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Innovative Insurance Alternatives for Child Welfare Organizations

Sep 15, 2020 Decorative image

Leaders of organizations responsible for the welfare of children—from foster care providers, to adoption agencies, to groups like YMCAs and Boys and Girls Clubs—can expect significant increases in their liability insurance premiums. Even some groups with “clean” histories are receiving renewals with double-digit jumps.

Factors Driving Premium Increases

Two key factors are driving premium increases. The first is the state of the overall commercial insurance industry. Over the past year, rates have increased for general and professional liability coverage. Organizations with better-than-average claims experience are seeing rates jump between 4% and 15%, along with similar increases for auto coverage. Those with a poor claims history or substandard risk controls can expect to pay 15% to 30% percent more for their coverage.

The second factor is even more concerning, because it focuses directly on child welfare organizations. We’re all familiar with recent high-profile cases in which prominent organizations have been accused of negligence related to sexual abuse of children and other vulnerable groups. From the Catholic Church, to the Boy Scouts, to the Penn State athletic department and others, these cases have resulted in legal action leading to huge verdicts and settlements.

Major societal changes are fueling this blazing fire. A concept dubbed “social inflation” occurs when social media and news coverage drive demands that organizations deemed to be responsible compensate the victims. State legislators react to that public outcry by changing laws in an effort to protect victims, such as extending or eliminating traditional statutes of limitation. Liability attorneys find ways to bring cases to friendly courts in communities where juries tend to be generous.

As a result, some carriers are refusing to provide liability coverage to specific categories of organizations. Others are reducing the limits of coverage and carefully crafting policy language to carve out specific types of risks. An organization may be doing everything right and providing an excellent level of protection, but they’re paying a costly penalty for the mistakes others have made. That’s how insurance works. If you’re a safe driver who lives in a town full of accident-prone drivers, you’ll pay more for your auto coverage.

Practical Risk Management Steps

Fortunately, there are practical risk management steps child welfare organizations can take to reduce the cost of protecting themselves from potential liability. Start by taking a hard look at your policies and practices to ensure they prevent bad actors from being placed in situations where they’re able to do harm. Everything from detailed background checks to policies mandating the presence of more than one adult at all times can help.

Having strong legal relationships in place before you experience a need is also critically important. Waiting until your organization is served with legal papers or becomes the week’s media target is not the time to find the right legal expertise. By establishing a relationship with attorneys who understand what’s involved in protecting organizations like yours from liability, you’ll have immediate access to counsel if a situation arises. If your organization works in multiple locations, be sure your legal needs are addressed in each of those areas.

It’s also wise to become aligned with state and national advocacy groups for organizations like yours. Not only will that give you a better way to encourage favorable legislation, it connects you with other proactive organizations and leaders so you can collaborate on solutions and share resources. Insurance underwriters look upon those relationships favorably.

Finally, consider methods that allow you to transfer risk outside of traditional insurance. One example is considering participation in what’s known as a captive insurance company, which is a licensed and regulated private insurance carrier created to serve the needs of a specific group of insureds. The members own the company, fund its reserves and control its operations to benefit each other. Reserves that aren’t needed for claims can grow through investment. Members agree to follow common rules and standards to minimize the potential for claims. They may set a limit for claims payments and purchase stop-loss policies to cover larger claims.

A captive insurer can be used as part of an overall risk management solution. Is it the right approach for your organization? A sound first step is the development of a feasibility analysis, in which a consultant examines the objectives, loss history and projections from an actuarial perspective before making recommendations. Click here to learn more about the advantages of forming a captive insurance company and Hylant’s specialized expertise in this area.

The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.

Mark Renske, Hylant Client Executive