Cyber Insurance Blog

Mastering Management Liability Insurance

Mastering Management Liability Insurance

When claims against a business’s management arise, costly legal expenses and financial losses can follow. Management Liability Insurance (or Management and Professional Liability Insurance) protects managers, executives, directors, and organizations’ other high-ranking personnel from these actions and their associated expenses.

Four Key Lines of Management Liability Insurance

Management and Professional Liability Insurance encompasses four key types of coverage.

1. Employment Practices Liability (EPL) Insurance

Woman uses pen to sign employment contract with business that needs EPL Insurance.

What is EPL Insurance? It provides coverage for claims present or past employees make against the company and its management team related to such issues as:

  • Wrongful termination
  • Discrimination
  • Harassment
  • Wage and hour violations
  • Neglect

Even against small businesses, EPL claims occur frequently. According to statistics shared during a recent webinar hosted by Counterpart Insurance, a ProWriters partner carrier, 60% of U.S. companies face suits from current or former employees each year. On average, defending these cases through trial costs $125,000. If you are interested in watching the full webinar, click here.

2. Fiduciary Liability Insurance

What is Fiduciary Liability Insurance? It covers the management team responsible for such employee benefits as pension plans, 401(k) plans, and welfare plans.

This coverage ensures fiduciaries aren’t personally held financially responsible for any losses these plans incur. It also protects against such claims as:

  • Mishandling of funds
  • Imprudent investment decisions
  • Breach of fiduciary duty (failure to act in plan participants’ best interests)
  • Amendment or termination of benefit plans
  • Violations of the Employee Retirement Income Security Act (ERISA)

Fiduciary claims are infrequent, but they are often severe when they arise. Defending these claims costs $500,000, on average.

3. Commercial Crime Insurance

What is Commercial Crime Insurance? It protects businesses against financial losses resulting from such causes as:

  • Employee theft
  • Robbery
  • Loss of money inside or outside business premises
  • Forgery
  • Embezzlement
  • Fraud

As much as businesses would like to think their personnel will behave honestly, internal losses are among the biggest they sustain.

This situation is especially true among small and medium-sized enterprises (SMEs). Statistics from the webinar state that employee theft causes a $290,000 median loss to SMEs, and 68% of embezzlement cases occur in businesses with fewer than 500 employees.

In this digital age, crime increasingly takes computerized forms, including:

  • Computer fraud, in which a threat actor hacks a computer system and causes the fraudulent transfer of money to an unauthorized account.
  • Funds transfer fraud, in which a threat actor sends fraudulent instructions to a financial institution to transfer money to an unauthorized account.
  • Social engineering, in which a threat actor impersonates a known and trusted third party to trick the victim into initiating a transfer.

During the Counterpart webinar, ProWriters Director of Broker Development Zane Goldthorp noted overlap between Crime Insurance and Cyber Liability Insurance.

Many Cyber policies have a cyber crime section. Yet Goldthorp tells brokers their business clients should carry both Crime and Cyber policies. In best-case scenarios, companies can rely on both policies, because cyber crime can lead to big losses. “It’s not uncommon to see a million-dollar loss,” says Goldthorp, “and a lot higher.”

4. Directors and Officers (D&O) Liability Insurance

What is Directors and Officers (D&O) Insurance? It protects directors and officers from legal costs, settlements, and damages resulting from claims made against them in the course of their duties.

D&O Insurance is the most complex type of Management Liability Insurance, and claims can be staggeringly large. Statistics in the webinar state that one in four companies reported a D&O claims loss in the last three years. For private companies, the average cost of defending a D&O claim is $400,000.

Overcoming Objections to Buying Management Liability Insurance

Hacker types on laptop computer keyboard, overlaid with digital security icon, illustrating cyber crime.

While the cost of Management Liability Insurance premiums may seem daunting to some businesses, the potential financial ramifications of not having this coverage make it a worthwhile investment. These policies are traditionally far cheaper than a General Liability policy or a Property and Casualty policy, and they provide valuable protection against a large number of exposures.

Businesses sometimes balk at buying Management and Professional Liability Insurance because they don’t think they are large enough to warrant it. But as soon as businesses have even one employee, for instance, they face EPL exposure. As another example, small businesses are actually three times more likely than larger companies to be targeted by cyber criminals. Clearly, these lines of insurance are essential to businesses of any size.

Goldthorp said family-run businesses sometimes insist they don’t need Crime Insurance because the staff knows and trusts one another. “It’s sad,” he says, “but when people get involved in sticky situations in their personal life—if they try [embezzlement] once and get away with it, it creates a pattern.” He recalled reading about one company that was growing exponentially, generating millions of dollars in revenue—but over four or five years, its trusted bookkeeper stole $7 million, all because of a gambling addiction.

“From the agent’s viewpoint,” Goldthorp said, “if the insured doesn’t buy [a policy] because it’s too expensive, you did your job. You educated them. But most importantly, you protected yourself and your agency in the event something is to happen, and there’s no longer an E&O claim [against you] … If you’re having the conversation … you’re doing the best you can.”

ProWriters Can Help You Quote and Sell Full Executive Lines

Small business’s board of directors sits around table discussing the need for Directors & Officers (D&O) Insurance.

Already a pacesetter in the Cyber Liability Insurance space, ProWriters can help brokers like you easily quote full Management and Professional Liability Insurance solutions to your clients.

By the end of the year, we will have EPL Insurance as a live option on our proprietary Cyber IQ Comparative Rate Platform. The data needed to generate multiple Cyber quotes from leading carriers for your clients also represents most of the information needed to generate EPL quotes.

For more information about how Management Liability Insurance can protect your business clients, and how ProWriters can help you successfully sell more of it, download your free copy of How to Become Your Clients’ D&O Insurance and EPLI Expert.

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