Did you know that almost one in eleven companies is sued?
Statistics show that between 36 and 53 percent of small businesses participate in at least one dispute in a given year and 90 percent of all businesses engage in litigation at any given time.
These are scary statistics. The risks of getting caught in a liability suit today are broader and greater than ever and these risks affect virtually all industries. It's like maneuvering through a minefield for entrepreneurs. This is why liability insurance for managers and salaried employees (D&O) becomes an essential tool for risk management.
What is D&O coverage and why would you need it?
D&O Liability Insurance protects company personal assets board members and officers in the event that they are personally sued by employees, customers, competitors, suppliers or investors for actual or alleged illegal acts in the management of a company. Here are some of the most common causes of these lawsuits:
- Violation of the duty of care that results in financial loss or bankruptcy
- Incorrect presentation of company assets
- Misuse of company funds
- Deviation from legislation in the workplace
- Intellectual property theft
- Lack of corporate governance
Do you need this coverage? Maybe maybe not. But do not make the mistake of thinking that D&O claims only happen with public companies or companies with deep pockets. Public, private and non-profit companies all face D&O risks. If your company has some type of corporate committee or advisory committee, a D&O policy is probably a good idea, especially now.
D&O claims explode. Here are three main factors driving the trend:
- Securities class litigation . In 2017 and 2018, the number of securities class actions in federal courts broke new records, and the volume has doubled since 2014, according to NERA Economic Consulting. According to the Wall Street Journal there were 217 securities class lawsuits in 2018 and settlements increased 71 percent, from $ 1.4 billion in 2017 to $ 2.4 billion in 2018.
- Demands for sexual conduct . The Metoo movement has shed a new light on sexual misunderstandings and led to a flood of liability practices (EPL) claims against managers. And because cases of sexual conduct often reveal a company's efforts to cover it up to protect their reputation, so do D&O claims.
- Growing Cyber Risks . If your company experiences a serious data breach and you are caught without cyber insurance, your board members and salaried employees may be included in a liability facility.
It complements ever-increasing premiums for D&O policyholders.  As the risk environment becomes increasingly volatile, interest rate hikes for D&O coverage are the new normal. In fact, entrepreneurs are paying significantly more for this coverage for the first time this year, and industry experts predict that the trend will continue. Companies are seeing interest rate increases from 10 to 50 percent, with a few even higher prices. Companies that have recently started offering publicly, financial problems or a difficult claims history see particularly large increases. Some healthcare companies even see increases of 100 percent.
And then came COVID.
The pandemic COVID-19 only contributes to uncertainty, as liability may arise as a result of exposure to coronavirus among employees. , a company's response to the pandemic, which provides misleading information about it and other scenarios.
What can employers do?
With Employment Practice Responsibility (EPL) and D&O responsibilities closely linked, it is important to regularly review your employment practices from top to bottom to ensure that you are complying with all laws and regulations. Make sure you create a work environment that your employees feel safe in. And take cyber threats seriously.
Finally, it is important to work with an insurance company that understands today's risks and your business, one that can get you the best D&O coverage at the best price. At BNC Agency we can help. Contact us today.