Many privately held companies are playing with fire and exposing themselves to a myriad of diverse risks by not having appropriate liability cover in place, a new survey reveals. And producers are being urged to help these businesses get the coverage they need to reduce potential threats and limit liability.
According to Chubb Group of Insurance Companies, who carried out the survey, large portions of companies employ bad risk management practices and lack appropriate coverage in areas ranging from employment standards to social media responsibility.
“Many private companies have not taken the loss prevention measures and have not purchased the appropriate insurance to help insulate themselves from litigation, government fines and their related financial and reputational consequences,” said Tracey Vispoli, Chubb’s senior vice president and specialty insurance global customer segments leader.
One area of specific concern is employee benefit plans. While 73% of companies surveyed said they use third-party service providers to administer benefit plans, only 46% take an active role in limiting fiduciary liability exposure by analyzing plans and reviewing administrative fees.
Similarly, 42% of companies have policies against hiring employees with criminal backgrounds—a provision that may be in direct violation of at least 27 state laws.
As to social media?
Sixty-eight percent of companies say they use it, but just 12% are concerned they will be sued for what they post online, and a little under half have a specific social media policy for their employees.
For Vispoli, these numbers are shocking—especially in a historical context.
“This is surprising in light of the fact that a large number of these firms have been sued in recent years by employees, customers, government agencies and other parties, and many are planning to participate in activities such as mergers that can increase their risk profile,” she said.
Indeed, 44% of private companies surveyed said they experienced at least one loss event related to directors and officer (D&O) liability, employment practices liability, fiduciary liability, crime, workplace violence, or cyber liability.
Larger companies were the most likely to experience a loss event, with 58% of businesses with 100 to 249 employees reporting a loss in the same time period.
Despite this, the purchase rate of appropriate insurance has remained unchanged, with just 5% more companies purchasing EPL coverage in 2013 than in 2010, 3% more purchasing D&O policies, and 1% more purchasing fiduciary liability. Companies with cyber liability coverage actually decreased by 1% during that time.
The message to producers is to get business clients the coverage they need, as quickly as possible, said Chubb spokesperson Jodi Dorman.
“Private companies may not be as protected against a liability-related lawsuit as they think they are, particularly when it comes to D&O, cyber, and EPL,” Dorman said.
