Management liability insurance lines enjoy boom

Global brokerage division leader explains why

Management liability insurance lines enjoy boom

Insurance News

By Bethan Moorcraft

Management liability insurance is enjoying a boom. If you think about the products that fit into that category - directors & officers (D&O), cyber, employment practices liability, fiduciary liability, crime, kidnap and ransom, tax mitigation, and reps & warranties (R&W) – it’s no surprise management liability practices are going well.

Every day, a news story breaks relating to one of these coverages - think headlines like: Major US city still offline eight days after massive cyberattack; Insurers in talks over $2.2 billion assets swoop; and Over a third of US workers have experienced harassment at work. Commercial organizations are increasingly exposed to management liability risks, presenting ample opportunity for insurers to enact valuable risk transfer.    

Gallagher, a US-based global insurance brokerage and risk management services firm, experienced “tremendous growth” in its management liability division in 2018, according to Phil Norton, senior managing director – insurance & risk management, Gallagher. Three products really stood out as top performers in terms of contributing to the division’s revenue growth and profit margin: D&O insurance, cyber insurance, and R&W insurance.

“Cyber has grown at a phenomenal rate because more and more people are buying the insurance,” said Norton. “It’s become a boardroom topic. The first question board members are asking risk managers is: ‘What are you doing about our cybersecurity?’ And the second question is: ‘Do we have insurance?’ Protection of any company today really requires both. If someone later sues the board over their cybersecurity, they’re going to ask: ‘Did you spend enough time thinking about your cyber defense, and are you being reimbursed for your losses?’ In order to protect themselves against a D&O claim, companies need good cybersecurity practices that are being reviewed, and they need to have insurance.”  

Management liability insurance products tend to have a lot of overlap. As explained by Norton, if a company mismanages their cyber exposure and suffers a data breach, management are being held responsible. If a company loses money in a cyber event, shareholders are demanding that money back. The plaintiff’s bar in the US is extremely hot right now and attorneys are targeting even the smallest organizational mismanagement as fair game in the courts.

“There has also been a rise in D&O claims revolving around the #MeToo situation,” Norton added. “For example, news might break that sexual harassment is prevalent at a publicly-traded organization. In addition to receiving really bad press, the company might have to issue some severance agreements to get some people out of the company, which is going to cost money. Different types of lawsuits might come in because of this. One says the company has been harmed and shareholders are owed money because the stick price has dropped. The second might say the company has spent a load of money it shouldn’t have had to (the severance agreements) because it mismanaged its workforce, so pay the company back.

“We’re also seeing a rise in event-based D&O claims. You could very broadly include things like sexual harassment and data breaches as events, but this refers more to events like a company experiencing a fire and then management being blamed for not having sufficient safety protocols or fire prevention mechanisms in place. That might seem pretty extreme because bad luck happens and an event’s not always someone’s fault, but the plaintiff attorneys don’t think that way.”

D&O claims can also arise out of mismanaged mergers and acquisitions (M&A). One way companies can protect themselves against breaches of representations and warranties made in purchase agreements is by securing an R&W policy. Yet again, there’s some overlap between these risks, explaining why management liability solutions as a whole are experiencing some rapid growth.    

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