Professional liability challenges from COVID-19 loom large over financial services firms

The pandemic is present in every D&O deal one expert is currently broking

Professional liability challenges from COVID-19 loom large over financial services firms

Professional Risks

By Alicja Grzadkowska

The directors and officers (D&O) insurance marketplace in the US is seeing significant spikes amid the COVID-19 pandemic. According to Marsh’s “Global Insurance Market Index,” US public company D&O prices were up 59% on average in Q2 2020, with more than 90% of clients experiencing an increase. In this environment, financial services firms are facing new professional liability-related exposures.

“Since the start of the pandemic in America, COVID-19 has become the newest underlying D&O exposure,” said Jeremy Huang (pictured), senior vice president of management liability and professional lines at Worldwide Facilities. “Every company is concerned about the potential financial impact that COVID-19 might have on their company and operations/revenues, and every insurer is worried about what type of claim is going to hit their books due to COVID-19.”

Simply put, COVID-19 underlines every D&O deal – whether it’s a new submission or renewal – that Huang is currently brokering. He added that for every D&O submission he receives, he has to answer at least six to 12 or more questions related to the pandemic, and the underlying financial impact that it’s having on a company’s business operations and profitability.

In the meantime, there’s another pandemic-related D&O exposure looming in the near-term, and that’s heightened cybersecurity risks. With many companies adapting to remote working models, there is the potential that financial services firms will be exposed to a cybersecurity breach, which could bleed into a D&O policy.

“Typically, we think of a cybersecurity policy as a solution to mitigate this particular exposure,” said Huang. However, delays in services or interruption in operations due to a cyberattack can still result in lost business, revenues, and income, while the shutdown of operations for an extended period of time can cause irreparable damages to a company and its reputation.

“These types of exposures have a larger D&O implication,” he explained. “It doesn’t even have to be a cyberattack that can cause an interruption – [it can be] a catastrophic system failure of a utilities system or third-party cloud service provider that stores a firm’s data and operating system, or even the internet service provider itself. It’s the directors’ and officers’ duty to show that they’ve done something to mitigate cyber-related risk as a part of their due diligence process and corporate governance before it ever happens.”

After all, this type of system failure could have the same impact as a denial of service attack prompted by a hacker.

There is coverage built into cybersecurity policies that is widely available to most companies for these types of cyber exposures, however there is growing concern that some cyber-related claims might leak into the D&O space causing concern for additional D&O losses.  

In the work-from-home environment, there are also employment practices liability challenges that can arise. The biggest concern, said Huang, is ensuring that HR and management are complying with the Fair Labor Standards Act's requirements related to overtime, and paid/unpaid time off, especially since some hourly employees are not physically in the office right now.

“This is obviously harder to manage remotely,” said Huang. “Employee reviews, evaluations, and training will have to be done online or via virtual conference calls. Other items to consider are employee reimbursements for extra expenses as a result of working from home, such as the cost of printer ink cartridges, increased personal phone bills, increased electricity costs, and certain costs for internet usage.”

To assist companies with the myriad of additional challenges that have arisen during the pandemic, Worldwide Facilities offers expertise and specialization in professional liability and management lines, along with a broad network of specialist underwriters to provide insurance agents and their clients with appropriate and valuable insurance coverage.

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!