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Between a Rock and a Hard Place

Friday, May 1, 2020
Between a Rock and a Hard Place
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By: Tom Kallai, CLCS, Sales Executive / Risk Advisory Solutions

Before COVID-19 became the all-encompassing issue of 2020, another concern was growing for developmental disability agencies in the state of Illinois. Insurance markets for auto, property, and liability were all becoming more cautious, restrictive, and expensive, with workers’ compensation remaining the only line that was seeing aggressively competitive pricing. Now, as legislation and rules are changing in the wake of COVID-19, Illinois developmental disability agencies find themselves in an increasingly dire insurance marketplace.  

In July of 2019, brought on in part by allegations against the Archdiocese of Chicago, Illinois made a monumental move in prosecuting sexual abuse crime. Effective January 1, 2020, there would no longer be a statute of limitations.  Previously capped at 10 years, this change effectively broke open exposure to insurance companies who wrote sexual abuse and molestation coverage for their clients. The insurance market place for abuse and molestation quickly and dramatically began to harden. 

How Insurance Companies Responded

Some carriers have started capping abuse and molestation limits on liability umbrellas.  Developmental disability agencies that have carried $10,000,000 coverage limits over abuse and molestation have seen caps that reduce coverage by as much as 80%. Agencies without losses are seeing these restrictions as well as premium increases.  Agencies that have had abuse and molestation claims opened against them have seen dramatic premium increases, some as much as doubled. 

Insurance companies have increasingly pushed for the more limiting “claims made” policies, which can restrict how far back claims will be covered, rather than traditional, more encompassing “occurrence” based policies. The “occurrence” based standard allows the policy to respond with coverage that was in place when the claim occurred.   Other agencies have seen non-renewals in the wake of a quickly hardening market, with the traditional field of willing carriers becoming more and more cautious and conservative. 

Lingering Effect to Workers’ Compensation

As recent as January 2020, the Workers’ Compensation market for developmental disability agencies has been relatively soft. Insurance companies were willing to compete aggressively on new business opportunities in the space.  Rather quickly, we are starting to see a similar trend to that of abuse and molestation coverages. 

In April of 2020, in the wake of COVID-19, Governor Pritzker declared that essential frontline workers would be covered by their employer’s Workers’ Compensation policy if they believed that they contracted COVID-19 in the scope of their work. Previously, it was incumbent upon the employee to prove that an illness was contracted at work.  Proving so for an illness as communicable as COVID-19 would carry with it a high burden of proof. The Governor’s rule change eliminated the burden of proof. Workers’ Compensation insurance carriers are now responsible for the medical and indemnity costs for employees presumed to be ill with COVID-19 through their work.  

The Governor’s rule change brought several questions and uncertainty.  

  • Would COVID-19 claims affect the employer’s MOD score? 
  • How would COVID-19 claims affect the employer’s loss ratio with their workers’ compensation carriers?
  • How will carriers respond regarding renewal premiums? 

With these concerns, the Governor’s rule change was challenged on April 27th, which means that a clear resolution will likely come after a lengthy debate in the courts. 

The more unpredictable the results, the more cautious the insurance company. In five short weeks, we have seen carriers that have traditionally written Workers’ Compensation policies for developmental disability agencies put a pause on writing new business, even for those with favorable loss histories. What once was the best card to play for developmental disability agencies in the insurance marketplace may turn into another albatross.

Outlook

While the marketplace is getting more cautious and more selective, there are carriers who are not capping coverages and are willing to price competitively.  Access to human service specialized carriers through a specialized human service broker is more important than ever. The agencies that are retaining adequate coverage and competitive pricing are the ones that are working closely with their broker to build an effective marketing strategy. Although there is uncertainty in the marketplace, developmental disability agencies can avoid getting stuck in the hard market.  

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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