MPR offers a financial lines package policy to private companies to protect them against the escalating risks and costs facing these organisations.
Protection of the assets of both the company and its managers is vital within an increasingly challenging operating environment. The financial and reputational risks facing private companies and their managers are growing in complexity and scale. The Management Risks Insurance package policy is an integrated solution for private companies and provides five important sections of cover, each with its own limit. This policy provides a quick and easy to place solution for private companies.
Why do your clients need Management Risks Insurance?
- 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 company 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 companies with strong security and privacy controls are not immune to cyber risks.
What does the policy cover?
A comprehensive package policy providing cover for:
- Directors and officers insurance;
- Employment practices insurance;
- Company 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?
- Financially sound organisations with consistent and experienced management.
- Established businesses that have been operating for more than three years.
- Comprehensive and robust risk management strategies.
- UK or European based companies.
- 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 are characterised by higher hazard risk profiles and worse experience than the average. Good examples would be cash risk at theme parks, directors liability on professional sports clubs or the risk of employment claims in an ex-governmental private organisation. Underwriters will necessarily exercise a more cautious approach in certain trades and certain risks within certain trades.
- Newly established industries 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 versus more straightforward businesses.
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 companies and their directors.
- Important cover for the company itself
- The origin of the cover for the company as an extension to the D&O contract was founded on a simple principle, which was that most private companies were owner managed. Therefore, a loss that was suffered by the company was a parallel loss to the directors by virtue of their ownership interest.
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 D&O section of the 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 is not a Cyber insurance policy, much of the benefit of which lies in the breach response services that those policies provide. 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;
- 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 product 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?
A lot of focus is on the new and emerging areas of risk. However, much of the value still lies in protecting against offences that have been around for many years.
New types of claim are emerging, but long-standing risks are still out there. Although the Wildlife and Countryside Act 1981 may not sound like a hotbed for claims, management liability policies have been providing relief for many years, including the following examples:
- A planning officer at a house builder was alleged to have damaged the habitat of the Great Crested Newt whilst constructing a new development;
- A construction company was contracted to perform dredging. In order to carry out any work within an 8-metre distance of the riverbank, approval from the Environmental Agency was required. The company did not obtain this approval. The Operations Director received a Summons and Notice of Claim in relation to alleged breaches of the act.
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 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.
A long serving employee was discovered to have been embezzling funds over an extended period. This caused emotional and financial distress, but the employer took some comfort from the fact that they had insurance for employee theft through their management liability policy. However, because of the language of the policy, which required the loss to have been ‘first sustained’ during the policy period (i.e. the current policy in force), the claim was declined because it had been first sustained in a prior policy year, and consequently there was no cover for any part of the crime.
Care is needed when choosing an insurer. In this case, the client suffered financial loss and the embarrassment of a trusted employee ripping them off but there was a realistic expectation that at least part of the loss would be met by the policy. The fact that it wasn’t only compounded their misery.
Litigation is often used as a tactical weapon, particularly in foreign markets. A company received a complaint for patent infringement filed in the United States District Court of Massachusetts. It was alleged that an existing patent had been infringed and that the claimant suffered irreparable harm.
Notwithstanding that the allegation had little merit, a robust response was required. The claimant was perhaps gambling on scaring the competition away, but defence lawyers needed to be engaged nonetheless. They wrote to the claimant to demand that they voluntarily dismiss the complaint, surrender the patent or dedicate it to the public. They alleged that the claimant had not sufficiently pleaded their case and that they could not prove infringement. Moreover, they alleged that the patent was invalid due to prior public uses.
This highlights the difficulties in trading in foreign markets, particularly the USA. The local business was possibly playing tactically but there was no way of knowing. The defence costs sublimit for the company was able to absorb the cost of the lawyer for an exposure that the company may not have even known it had.