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Leadership protection: How industry shifts require new forms of cover

At a glance

  • The growth of social media and alleged violation of employment and non-employment laws has seen a rise in demand for leadership protection

Last year saw business volumes for banks and building societies grow at their most rapid rate since the financial crisis first struck in 2008. However, despite this, the past 12 months have seen a period of extreme economic turbulence, not just for the financial services industry, but commercial companies as well. Job cuts, a lack of lending between banks and businesses, and a fall in business for everyone from general insurers to mid-market SMEs, were all features of 2012.

As a result, company executives face many challenges, including, for some, being forced to downsize. With increased dismissals and insolvencies, many directors and officers have come under increased scrutiny. Allegations of wrongful acts or claims from former employees that may have been unfairly dismissed or discriminated against are now more commonplace.

Speaking about the industry changes, George Melides, Head of Commercial D&O, Zurich Insurance plc, UK, said “With the current business and economic climate, directors and officers are at the focus of potential litigation and legal action from a range of government bodies and agencies on regulatory and employment issues. Executives are a lot more ‘exposed’. With the coverage that is offered by the insurer and the rate at which it is provided, brokers certainly cannot afford not to present that option to their customers.”

Increased frequency of claims

The growth of social media and alleged violation of employment and non-employment laws via this medium is an emerging trend against which companies need protection. Defamation of character or being offensive and insensitive to religious beliefs of employees, customers or other third parties are examples of challenges that a business could face today. However, despite increasing incidents, such trends continue to be overlooked.

The five lines of cover

  • D&O Liability: Directors face an increasingly litigious society and ever-evolving legal environment. The majority of UK directors and company officers don’t have adequate liability insurance in place, presenting brokers with a real opportunity.
  • Corporate Entity Liability: Zurich’s Corporate Liability Insurance policy wordings have been upgraded to ensure they deliver a competitive and comprehensive insurance solution. Not having such policies in place could have implications for you and your corporate clients.
  • Employment Practices Liability Insurance: EPLI protects companies, as well as managers and other employees, against financial risks resulting from claims based on employment-related discrimination and harassment, such as wrongful termination or non-compliance with data protection laws.
  • Pension Trustees Liability: This product provides personal liability covers to companies’ pension plan trustees for claims brought by beneficiaries, regulatory authorities or other parties. It is only available to D&O policyholders and is suitable for SME to mid-corporate sized businesses.
  • Employee Dishonesty: This policy covers an organisation’s money and property against dishonesty by its employees or volunteers during the course of their work. As well as covering the value of the loss, it also covers investigation costs and expenses incurred in proving the loss – essential for those industries susceptible to corporate espionage or fraud.

Unsurprisingly, as legislation to protect employee rights has become more stringent and widespread around the world, with proposed employment reforms in a number of areas, Employment Practices Liability cover (EPL) has become increasingly popular.

To meet these challenges and provide the best protection possible from such threats, Zurich’s Executive Risk Solutions product offers five separate, wide-ranging lines of cover.

D&O Liability, Corporate Liability, Employment Practices Liability Insurance, Pension Trustees Liability and Employee Dishonesty are all within a single policy wording and are competitively priced and exceptionally flexible.

Why clients need Management Liability insurance

Some companies might question whether they need such coverage, but with the number of D&O, EPL and employee fraud claims on the rise globally, it seems to be a near certainty. Why the rise? Most of it can be linked to the passing of several global anti-bribery and anti-corruption laws, such as the UK Bribery Act 2010, the US Foreign Corrupt Practices Act (FCPA), and globalisation of the business and austerity measures due to the economic downturn.

As such, the enforcement of these laws by government agencies/bodies and the likely follow-on litigation has, and will continue to have, a major effect on the liabilities of directors and officers. Furthermore, for companies that trade internationally, any such actions could have dual liability both at home and abroad.

Speaking about the new regulations, George noted: “For companies in the middle market segment, the UK Bribery Act is a concern, especially for larger companies that have an international focus. International business trading is an area for concern and one that these companies need to think about seriously.”

Under Zurich’s Executive Risk Solutions policy, companies can cover the costs of any investigation into a company’s affairs, as well as public relations and reputation expenses and Pre-Claim investigation costs. But more importantly, customers can purchase separate aggregate limits of indemnity for each section, rather than sub-limits.

Client-specific coverage

With over 50 insurers worldwide now selling D&O insurance, it is important for brokers to make sure they get the right type of cover for their clients.


“Previously, insurers had offered sections, such as Pension Trustees Liability and Employee Dishonesty, as extensions and as part of the standard limit of liability,” George added.

“Instead, Zurich offers the solution to be able to choose separate aggregate towers. This allows clients to, for example, pay for any claim, related to D&O claims or corporate liability claims, and not worry that the amount that they have to pay on that particular claim will erode their cover on any of their other sections.”

All of this makes for an essential form of cover for any business in these changing times.

Image © Getty

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