Lines blur over SML and cyber insurance ahead of UK sexual harassment reform

The recommendation, made by cyber insurance expert Ellie Ludlam of Pinsent Masons, comes after a recent report by The Insurer highlighted the potential for conduct that could constitute SML to be derived from the use of technologies such as generative AI and wearables and from the dissemination of content via digital channels.

According to one underwriter quoted by The Insurer, April Salvas of Business Risk Partners, this could “challenge traditional policy definitions and raise questions about where digital conduct intersects with affirmative misconduct claims”.

The Insurer’s report follows earlier publications that have highlighted growing demand for standalone SML cover in the US. Insurer Beazley has attributed the growth to legal reforms and an increase in historical abuse claims, with brokers Gallagher having cited “ballooning” claims costs for healthcare organisations in one segment of the market.

In the UK, the SML insurance market is currently small. However, employment law expert Anne Sammon of Pinsent Masons said reforms to the law due to take effect next month could expose UK employers to more SML claims.

Sammon said: “With effect from 30 October, employers are required to take all reasonable steps to prevent the sexual harassment of their staff. This extends not only to seeking to prevent employees from harassing one another, but also to taking steps to prevent third parties – including clients and customers – from sexually harassing staff. The latter can be problematic and could entail steps which are potentially at odds with a firm’s commercial drivers.” 

“Employers that cannot demonstrate they have taken all reasonable steps to prevent sexual harassment face significant legal and financial risk. A tribunal can uplift compensation by up to 25%, and because sexual harassment awards are uncapped, the resulting liability can be considerable,” she said.

Ahead of the forthcoming legal milestone, Ludlam said insurers should review the way their policies are worded.

“There is potential for disputes to arise over whether conduct falls to be addressed under cyber, professional liability, general liability or SML policies,” Ludlam said. “For instance, if an AI-generated image is used to harass someone in the workplace, it might be unclear if a resultant claim would fall to be addressed as a cyber claim, an SML claim, or both. This issue merits UK insurers’ attention, particularly as the legal landscape is about to change.”

Lucy Thomas, a director in claims at insurance broker Gallagher, said the standalone SML market shares many characteristics with today's cyber insurance market, citing “a surge of new capacity entering the market even as claims volumes remain elevated”. She said the underlying risks continue to evolve in complexity and sophistication.

“While increased capacity may be beneficial for policyholders, it can create challenges in establishing trust and confidence in the product, particularly when claims volumes remain high and the underlying risks continue to develop,” Thomas said.

“While assessing a business's exposure to SML risk can naturally lead to some difficult conversations, it is essential that clients are transparent with their brokers. This enables brokers to take a holistic approach to designing an insurance programme that adequately addresses any potential overlap or crossover in coverage. Businesses should not only review their internal policies, procedures and controls relating to sexual misconduct, but also analyse any relevant claims data they hold. In addition, they should consider how an SML claim could arise, escalate or be amplified through digital platforms and online channels,” she said.