MPR offers a financial lines package policy to protect the assets of Limited Liability Partnerships against the risks associated with their operational environment.
Originally conceived as a vehicle for use by professional practices, LLPs have become increasingly popular as an alternative business model for a wider audience. Protection of the assets of both the corporate entity and its managers is vital within an increasingly challenging operating environment. The financial and reputational risks facing private LLPs and their managers differ little from those of commercial organisations. The Management Risks Insurance package policy is an integrated solution and provides five important sections of cover, each with its own limit. This policy provides a quick and easy to place solution for LLPs.
Why do your clients need Management Risks Insurance?
- Members, directors, officers and senior managers can be exposed to a broad spectrum of civil, criminal and regulatory actions, often involving hefty costs. Specialist lawyers do not come cheap. Depending on the nature of the allegations, hourly rates can be many hundreds of pounds.
- Good human resources practices can go a long way to mitigate exposures to claims by employees but cannot eliminate them completely.
- Keeping pace with change, accelerated by technology, exceeding customer expectations and growing a business profitably demand comprehensive risk management strategies. Insurance for the LLP is a key element of this.
- According to the Association of Certified Fraud Examiners, the average organisation loses about 6% of its total annual revenue to fraud and abuse committed by its own employees.
- Even LLPs with strong security and privacy controls are not immune to cyber risks.
What does the policy cover?
A comprehensive package policy providing cover for:
- Member, directors and officers insurance;
- Employment practices insurance;
- Corporate insurance;
- Employee Crime, Crime using Computers and Social Engineering Crime;
What limits are available?
Your clients can choose the limits they need for each area of exposure as each section has a separate limit.
The limit for Cybersecurity is fixed at £25,000 (higher limits or broader cover requires a dedicated wording, also available from MPR).
What does an underwriter like to see?
- Well established organisations with stable, consistent and experienced management.
- Comprehensive and robust risk management strategies.
- UK and Ireland based organisations.
- Organisations with good checks and controls in place, such as:
- HR background checks and reference procedures;
- written policies on discrimination, harassment, discipline and termination;
- call back procedures for phone transfer requests;
- structured procedures around bank account changes;
- dual controls.
Is there anything an underwriter wouldn’t insure?
- The policy covers management and operational risks, so this is where underwriters will focus. Some trades or occupations are characterised by higher hazard risk profiles and worse experience than the average. A good example of this would be large law firms. Underwriters will necessarily exercise a more cautious approach in certain trades and professions.
- The policy contains exclusions to remove disputes that are not in the scope of this kind of insurance. These include professional liability, disputes over partnership agreements and non-appointment of partners.
- Newly established LLPs may need more focus to get a better understanding of the dynamics and risk profile.
- Whatever the risk, underwriters will always try to find solutions, even if the policy terms may be more cautious and reflective of the risk characteristics.
Why choose MPR?
- Deep experience over many years in all the products we underwrite
- Simple and clearly stated policy language with the removal of ambiguity
- A straightforward, broker focussed, technical and service based proposition
- Strong financial rating
- Comprehensive and constantly improving cover
- Management liability policy sophistication has developed significantly in recent years and has strengthened the appeal to the buyer and their position in the event of a claim or investigation. The result is policy language which is clear and which evolves to accommodate the changing landscape and exposures faced by organisations and their members and managers.
- Important cover for the corporate entity itself
- It is important to understand that the cover provided for the company by the insurance market is not as comprehensive as that provided to the directors by the Members & D&O policy. Some risks are simply operational or trading risks and not fortuitous, a key aspect of insurability. Nonetheless, the cover provided by this section can provide valuable protection in many areas and defence costs for a number of scenarios and for some, but not all, regulatory actions.
- Cover for ‘cyber liabilities’
This policy is not a substitute for a Cyber insurance policy. However, it will deal with many of the ‘cyber’ liabilities that the internet and e-commerce have opened up, some of which include:
- Claims for copyright, trade secret and other intellectual property infringements;
- Defamation claims;
- The risk of investigation by The Information Commissioner;
- Claims and investigations for privacy and data breaches;
- Computer fraud and funds transfer fraud losses caused by third parties; and
- Costs of handling ‘cyber’ extortion where someone threatens to interfere with data or to disseminate customer records.
- Previous policy cover option
- Changing management liability insurer is a lot easier than it used to be. Whilst there has never been any obvious impediment to switching to a stronger product offering, bewildering use of jargon and statements of capability can nonetheless create some room for doubt. Allowing an optional ‘look back’ provision in a policy permits a previous policy to be used to interpret a claim made on a superseding form. It is a far from perfect science, but it can provide some comfort where it is required.
What can go wrong?
The operational environment embraces existing and newly emerging areas of risk for LLPs.
Many of the new and existing laws make no distinction between incorporated and unincorporated organisations. Fees for Intervention and Deferred Prosecution Agreements are recent examples of new laws, and LLP Regulations apply most of the provisions of The Companies Act to LLPs. The exposure to directors disqualification and insolvency, as well as health and safety and cartel activity are the same as limited companies too.
More regulation means more allegations and investigations, which means insurance can play a vital role for LLPs.
Employment practices claims (single claims, rather than multiple claims primarily for equal pay and holiday pay) have declined by 79% since the since the introduction of fees in 2013, and those for unfair dismissal almost halved.
Whilst the impact of the change on fees was welcomed by employers, The Supreme Court decision in July 2017 on the abolition of the Employment Appeal Tribunal Fees Order 2013, will inevitably lead to an increase in activity at employment tribunals and a decline in the effectiveness of Early Conciliation.
The biggest single factor continues to be where the employer has failed to follow process, not whether they are right or wrong.
An anonymous whistle-blower suggested a LLP should investigate the conduct of a member of staff and the suspected use of a bogus courier firm. After an investigation, it was confirmed that the company was solely owned by 2 shareholders, which were the employee and her husband. Over 3,000 consignments with a value of over £350,000 were subsequently investigated, resulting in an identified loss of £170,000. This was a result of a combination of overcharging or charging for deliveries which never took place.
Supplier and vendor fraud, including ‘ghost’ companies, are major sources of employee fraud. A straightforward controls framework around appointment of new suppliers would have extinguished the opportunity to perpetrate the fraud, and dual controls would have also mitigated the effects. The only good news is that insurance was in place to cover the loss (although the deductible was taken off the final settlement). Left unchecked over a period of time (in this case over 3 and a half years), overcharging for services rendered and charging for services that were never performed accrued to a significant and meaningful amount.
More than 15 years after the introduction of the law allowing for the creation of LLPs, it is possible to identify patterns and themes.
It is clear from claims evidence that managers of LLPs are within scope of many of the exposures routinely faced by directors and officers of private companies and must navigate a very similar litigation landscape. Although LLP numbers have plateaued at less than 2% of all formations at Companies House, they will continue to be exposed to a wide range of proceedings and investigations, often arising from unpredictable situations.