Background and History
Over the past three years, insurance companies have tightened their underwriting criteria for nonprofit human service providers. The term, nonprofit human service provider is of course very broad. This category includes a very diverse group. For instance, nonprofit organizations that offer foster care and adoption services are extremely different than those that offer employment opportunities and day program support services for individuals with disabilities. Nonetheless, if you were an organization that falls under one of these descriptions, you would be grouped into the nonprofit human service provider category by an insurance company.
Until recently, it was commonplace for a single insurance company to be able to offer liability limits (through an Umbrella Liability policy) to nonprofit human service providers that were as high as $15,000,000 to $20,000,000. These limits would be inclusive of coverage for Sexual Abuse and Molestation at the full limit or at a high sublimit such as $10,000,000. Coverage for Sexual Abuse and Molestation was typically on an Occurrence basis rather than a Claims Made basis. Over the last three years, this practice came to a screeching halt. Two major changes occurred. Many insurers began a trend of offering Claims Made policies with a retroactive date of policy inception rather than providing full prior acts coverage or rather than providing Occurrence policies. This trend has hit child welfare related nonprofit human service providers more than any other part of the industry. As if that were not enough, nonprofit human service providers who feel the need to carry limits of liability greater than $3,000,000 are doing this through a network of insurers. To achieve a desired limit, nonprofit human service providers must create a tower of insurers where each offer several million dollars in liability limits. This is known as creating a liability tower or layering limits. The cost of liability limits today are now regularly five or more times as much as it cost ten years ago. The reason that most insurers have changed how they offer insurance policies to many nonprofit human service providers is due to their desire to (1) reduce the exposure to loss for long tail Sexual Abuse and Molestations losses and (2) remove the probability of paying large limit losses for Auto liability claims since the frequency and severity are on the rise.