It’s always been designed to take the worry out of running a company but management liability policies are becoming more and more sophisticated as insurers compete for market share.
Today’s policies can be structured to go beyond the basics to offer clients everything from access to legal advice to cover for emerging risks.
Jaydon Burke-Douglas is the Speciality Risks Practice Leader for underwriter DUAL Australia’s management liability products and says that the management liability insurance market has changed “phenomenally” over the last decade.
“Originally it was just a barebones cover, and it’s evolved into a one-stop shop for all of management-type exposures for a very nominal price, with the average premium under $2000 for one of these products,” he says.
A 2011 survey found that just 16% of Australian businesses had D&O cover and, while the market has grown slightly, Burke-Douglas says most eligible businesses still don’t have this cover.
“We think about 80% of businesses within Australia don’t purchase management liability insurance, which is insane when it covers things like crime exposure, employment practices liability, directors and officers liability and cyber risks.”
Lucinda Conlon, National Product Manager at Chubb Insurance Australia, says even though management liability insurance started as a spin-off of the public company-focused directors and officers (D&O), it is the much broader cover of the former that is contributing to its growing take-up.
“Private companies are looking at different exposures. They are often family-owned, smaller and the assets of the company and the directors are one and the same,” she says, adding that management liability protects the company as well as the directors. Conlon says that a decent management liability policy should cover most of the issues that are covered in D&O insurance, plus a lot more.
“For private companies that would probably mean breach of contract cover, covering customer disputes, competitor disputes, regulatory inquiries, possible shareholder disputes, negligence in running the company, management of employees, work health and safety issues, trade practices issues such as discrimination and then finally defamation,” she says.
“The next element is employment practices, because mostly the company enters into the contract with the employee, not the director. There’s breach of contract, unfair dismissal, harassment and discrimination actions that you would want cover for.”
Business adviser Deanna Lane works with CEOs on developing long-term business growth and says that directors and officers can be held accountable for a huge range of business incidents – and it’s the things they don’t know about that can keep them up at night.
“Senior executives worry about the extent of their responsibilities in protecting their businesses and employees and the consequences if they don’t,” she says.
Despite cost pressures, she says there’s definitely plenty of interest from fast-growing SMEs about putting adequate insurance cover in place. “As a director of a company, you are liable for decisions made, for the company’s reputation – so liability insurance is certainly a high priority for them but it needs to be justifiable,” she says.
Jaydon Burke-Douglas says that DUAL Australia have recently introduced management liability insurance customers to a whistleblower hotline service, which gives SME clients access to a corporate-level service for a nominal fee via RISQ Group.
“Crime prevention is high on our radar and we have a really sizable portfolio of insureds who purchase crime insurance from us. We know from our own experience that the best way to detect fraud is via the promotion of whistleblower protection,” he says. “A huge percentage of fraud in this country are detected because whistleblowers blow the lid on untoward events within the organisation.”
Just a few years out from a long-term operation to publicly list in the UK, DUAL Australia was hit by a $17 million in-house fraud, he says. “The implications for directors and offices for not having a satisfactory whistleblower hotline service or a satisfactory crime insurance policy in place are significant, particularly when you’re talking about a small to medium-sized enterprise,” Burke-Douglas says.
Fraud that threatens an organisation’s solvency can lead to potential director prosecutions for all kinds of issues such as insolvent trading claims and loss of profits claims from shareholders. “The list is only as long as the imagination of your average plaintiff lawyer,” he says.
Burke-Douglas says that cyber protection, which covers third-party claims for such incidents as breach of privacy, is becoming critical for many clients.
“The vast majority of privacy breaches in Australia today aren’t via hacking – it’s when your employee gets their laptop stolen from a pub, it’s somebody leaving a memory stick on the train, it’s leaving your iPhone in the back of a taxi,” he says.
“A lot of employees can access their company’s entire network through their iPhone. There’s four numbers protecting the whole lot from some hacker – that’s the typical phone password. The exposures today are significant and risks are increasing exponentially as technology improves. The insurance market is only just catching up.”
Jeremy Scott-Mackenzie is AIG’s Australasian Commercial Institutions Manager for Financial Lines and says that insurers have reacted to an increase in management liability claims in recent years in various ways.
He notes that irrespective of the size of a company, directors and officers face similar risks. “A start-up and a multi-billion dollar company have to operate within the same legislative regime, but smaller companies won’t necessarily have the risk management, the legal team, the compliance team, or indeed the financial resources to deal with a lot of these complex and expensive pieces of litigation.”
He says that there’s over 700 legislative penalty provisions in Australia that are levied personally against directors. While risks are equal, the scale of indemnity differs, so smaller companies usually still merit smaller premiums.
Scott-Mackenzie says the focus for AIG is on assisting clients earlier. “We look at how we can effectively act as their in-house legal counsel. A good insurance policy will pay a claim, but a great insurer in this space will actually sit in the client’s office and provide them with advice so you maybe help them not end up in litigation at all.”
AIG offers all business customers access to their ‘Business Guide Advisory Panel,’ which pays for clients to call a lawyer from a nominated selection around the country, and get legal advice early on.
“We say, as soon as you are worried, call the lawyer and get the advice. It’s in our self-interest to assist the client at that point, but it’s in the client’s interest as well. While the insurance policy might cover the ligation should it incur, I don’t know a client out there that wouldn’t prefer to avoid the litigation in the first place.”
Scott-Mackenzie says that the service was introduced into AIG’s flagship management liability product, Private Edge, and is now offered across the range of liability products.
AIG’s Transact platform helps a broker and a client build a custom management liability solution to suit their situation, set a variety of liability limits – and includes key add-on covers like cyber and crime protection.
“Frankly, a one-size-fits-all just does not work,” he says, adding that customisation is the key to expanding the penetration of management liability policies.