As regulations are established and laws get more complicated, you and your company face more exposure to lawsuits. And with any lawsuit exposure, the judgment is often not as significant as the defense — a victory could come at a high financial cost, which comes out of your pocket if you’re without insurance.
“Insurance is a mechanism that is designed to help you avoid huge legal defense costs and the financial burden that accompanies them,” says W. Reed Moraw, president of Cadence Insurance, formerly Town & Country Insurance Agency, an affiliate of Cadence Bank.
Smart Business spoke with Moraw about how the right management liability policy limits your exposure to certain claims.
Why should a company consider this type of insurance in addition to standard property and casualty insurance?
Private companies have considerable exposure to one or all of the following — management liability, employment practices, crime and cyber claims. Therefore, you can purchase a management liability policy that bundles a broad mix of insurance coverage, such as directors and officers liability, employment practices liability insurance, fiduciary, crime, cyber liability, employed lawyers, and kidnap and ransom coverage.
What’s the benefit?
Premiums have historically been low in relation to the way exposure and claims are trending. It’s recommended that all private companies have a detailed review of their exposure as well as the costs of the coverage.
You want a comprehensive insurance policy that will pay for the cost of defense as well as a settlement or judgment, if there is one. The cost of defending yourself, whether you win, lose or settle a case, can be very high. There are always exclusions and limitations to policies, but your agent can work with you to identify your risks and find a policy designed to mitigate your exposure.
How does this type of coverage work?
The insurance underwriting starts with an application and supporting documentation such as financials, loss history, company employee handbook, etc. There are numerous insurers that underwrite management liability policies, but the quality of coverage is not uniform. Every company has a unique exposure, and therefore the agent or broker should create a risk profile and seek the best policy to fit the client’s need.
How’s the market for this type of coverage?
In terms of premium, retention and breadth of coverage, the market is shifting. From 2004 to mid-2012, insurance rates have gone down significantly on a year-on-year basis. Currently there’s pricing pressure in the marketplace. Most carriers have stated they will be looking to increase premiums, moderately restrict underwriting and potentially reduce coverage.
Driving these changes is insurance carrier loss experience arising from employment practice liability claims. In addition, directors and officers’ claims are becoming more significant, some of which can be attributed to increased merger and acquisition activity. The costs to settle and/or litigate those cases are averaging around $225,000 — with some approaching $5 million.
As a result, many within the life sciences, real estate, banking, financial services, oil and gas industries, etc., are finding it difficult to secure coverage or are seeing their existing program renew with coverage carve backs, restrictions and price increases.
So, what should a company do?
A company needs an insurance agent well versed in these areas to evaluate exposures, secure coverage and service a private company’s needs. Companies should seek an agency with knowledge of coverage forms and enhancements, changes in insurance company appetites and broad access to the insurance marketplace.
It’s also helpful if your employee handbook is comprehensive and up to date, and you’ve kept up with changes in the laws as they relate to your employees. The time to talk with your insurance agent is when you are thinking about making a change within your company, not after the change has been made, just as you would consult your banker or attorney. It’s important to have a good agent who keeps up with trends impacting the industry in an effort to ensure exposures are mitigated and gaps are covered.
W. Reed Moraw is president at Cadence Insurance, formerly Town & Country Insurance Agency. Reach him at (713) 461-8979 or firstname.lastname@example.org.
Website: To learn more about the types of insurance that could help protect your business, visit www.cadenceinsurance.com.