The market for management liability coverages is soft. Premiums are down, which means revenues are down. Yet there still are tremendous opportunities for proactive agents and brokers to sell the coverages, according to Kirk Denebeim, senior vice president for Socius Insurance Services Inc. based in San Francisco.
Management liability coverages today include directors and officers liability; employment practices liability; professional liability; Internet, computer security systems; fiduciary liability; and fidelity bonds, he said.
Since early 2000s when there were many big corporate scandals sweeping America, the issue of personal liability has become a much broader and sensitive topic because officers and directors know their personal assets could be touched if the company gets into trouble — even if it’s not their fault, Denebeim said. E&O coverage in particular is designed to protect against that, providing legal defense and immediate indemnification for settlements and judgments for which the insured is liable.
Often, the managers that need coverage the most think they can go without it, Denebeim said. To overcome that hurdle, he recommended explaining to potential customers that personal liability can be incurred by individuals and officers of corporations. Put it into the perspective that “your own household furniture, your own kids’ college tuition is exposed,” Denebeim said. “They potentially will be selling their homes if they get into hot water.”
Whether talking about D&O, EPLI, fiduciary liability or any type of professional liability, all of this is roughly E&O insurance, Denebeim said, designed to protect individuals and the company entity. Thus, recommended not selling such coverages separately. “In our practice, we do not divide management liability risks. Our teams work with all of the products and work it as a market together.”
In general, the market for management liability coverages is ripe. For instance, D&O coverage can be divided into three categories: for publicly traded, for-profit companies; for privately held, for-profit companies (which includes corporations, LLCs, S-corporations); and for nonprofit organizations. When you think about those categories of clients, there is a “vast pool of potential insureds for D&O,” Denebeim said. He referred to statistics that there are approximately 10 million privately held, for-profit companies in the United States, but slightly less than 2 percent of those companies purchase D&O insurance.
“Do the math,” Denebeim said. “Ninety-eight percent of 10 million companies don’t buy this stuff. So the potential to sell this stuff is absolutely unbelievable.”
He recommended agents and brokers look at D&O coverage as catastrophic coverage. When someone makes a D&O claim, defense costs quickly escalate. “There’s no such thing as a small, $10,0000 claim. D&O losses are infrequent, but catastrophically severe — so severe, that it will threaten the economic survivability of many of these companies,” Denebeim said. The good news, he said, is that because of the soft market, coverage is available “at a surprisingly low price.”
Most companies have few shareholders or owners, so they assume there’s no exposure, he added. But a D&O policy is a difference in conditions liability policy, he added. “If the insured finds himself or herself on receiving end of lawsuit, and it’s not (covered by) auto, pollution … it’s something else, some kind of miscellaneous litigation, D&O will come into play,” he explained.
Similar to D&O insurance, Denebeim said Internet liability insurance is undersold — although the product has been around nearly a decade. Such coverage protects against hackers, when data is exposed to unauthorized users; viruses; copyright/plagiarism issues; and e-mail issues. “This is a true catastrophic exposure that everyone has to one degree or another,” he said. Practically every business has Internet exposure, he said, so there are opportunities to advise clients on managing that risk.
Fiduciary liability is another growth area, Denebeim said. “(Exposures in this area) are expected to grow exponentially in the next five to 10 years because of Baby Boomers,” he said. As Baby Boomers retire, they may allege that their 401K plans didn’t perform as they should have. Even if the plan was handled by a third-party, the company bears responsibility. “Large sums of money will be at stake,” he said. And issues could arise leading to litigation and class action lawsuits, which will be expensive to defend.
Ultimately, Denebeim said agents and brokers should not wait for their customers to ask about management liability coverages. It’s the industry’s job to educate them about the exposures. But he believed if agents and brokers make potential customers aware of the facts, providing statistics about lawsuits and defense costs; provide good news about coverage being available because of the soft market, competition and broad coverage forms; and appeal to persons’ personal assets, then selling should be relatively easy.
“The soft market is an ideal time to sell management liability products,” Denebeim said. “There’s continued and growing exposure, with a vast untapped number of insureds. … The market has moved … to an ‘all risk’ policy form that covers numerous individuals and entities for various types of exposures. … This is an area that needs expertise. And clients’ best interests are served — and the retailer’s burdens are greatly eased — by placing business through a management liability specialist,” he concluded.
Denebeim was a speaker at the Sacramento’s Big I Day and has 10 years of experience in management liability coverages.
Topics Agencies Pricing Trends Market
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