In the wake of a new law in New York that could lead to a flood of new child sexual abuse claims against public and private organizations, insurers will need to consider adding a regulatory risk premium to combat pricing difficulties.
With the New York Child Victims Act now in effect, prices will increase because insurers are now being forced to take on exposure that was not apparent when they initially underwrote policies, said Chris Williams, senior managing executive officer and co-head of international business at Tokio Marine Holdings Inc. Once the statutes of limitations expired, insurance companies assumed they were "done," he told S&P Global Market Intelligence.
"When a regulator says, 'No, no, no, we're going to retroactively move that back,' it makes it very difficult to price for," Williams said. "I think the only way to do that is to build in some type of regulatory risk premium."
Williams said he does not know exactly how such a risk premium would work, but he said it is "clearly going to be a consideration" and insurance companies will have to adjust. He said every company has some way to deal with potential regulatory changes that could impact old policies, but he is not sure if it has ever been "specifically wrapped into the fibers" of doing business in a particular segment.
"I think some of these actions now taking place, it's going to force companies to start thinking about that," Williams said.
The New York Child Victims Act extended the statute of limitations for child sexual abuse claims and opened a one-year window, starting Aug. 14, in which victims of such abuse could pursue civil action regardless of when the incidents took place.
The law is expected to produce claims so large it will force insurance companies to tap into reinsurance. The Catholic Diocese of Rochester became the first organization to file for Chapter 11 bankruptcy protection in light of the law. Its filing provided a window into the potential volume of claims that could arise and the extent to which the insurance industry might be on the hook for new abuse claims.