Viruses don’t typically generate a cluster of D&O and EPL claims. COVID-19 is the exception
Business closings and slow-downs related to the pandemic have led to major layoffs in the U.S. workforce1 and a reduction in revenue for thousands of other organizations, ushering us into one of the sharpest economic declines in history.
This sort of activity leads to increased litigation and exposure for directors and officers.
When assessing the organization’s insurance program, protecting the balance sheet is critical, but it is also prudent to focus on protection your net worth. Directors and Officers (D&O) insurance and Employment Practices Liability (EPL) insurance protect the personal assets of a company’s directors, officers and employees as leaders of the organization. These coverages are critical to protecting the directors and officers for defense costs and for indemnity. They provide excess protection for leadership when they’re named in lawsuits that fall under other liability policies, including Cyber, Products, Environmental Liability, and General Liability. The policies are also a backstop or safety net to the organization’s balance sheet or financial viability
Whether the lawsuit comes from employees, regulatory bodies, creditors, shareholders or even customers or competitors, D&O and EPL claims are often costly. D&O lawsuits accusing executives of not doing enough to prevent a business closure and EPL claims accusing businesses of requiring employees to work in unsafe conditions during the pandemic, are already trending. As non-essential businesses begin to bring employees back to the office, we are likely to see an increase in EPL claims as well.
Protect Your D&O and EPL Policies as Risk Increases
Prior to the pandemic, D&O and EPL policy retentions were already on the rise, capacity was being pulled back, limits cut in half and prices were mounting. COVID-19 has further exacerbated these market conditions.
Underwriters are looking to back businesses with financial stability, a proven track record, and continued market opportunity. They’re hesitant to commit to first-time buyers of these products and weary of some renewals, especially those with businesses experiencing pandemic-related risk. For all these reasons, average policy increases are expected to be in the 15 to 20 percent range. If you come in under 30% on a renewal, you are beating market trend in many cases.
Underwriters are asking examples of the following COVID-19-related questions to determine which organizations are a good risk.
Enterprise Risk Management
- Does your business have a corporate Enterprise Risk Management process?
- Are you adequately prepared and able to accommodate employees working from home, in regard to IT functions and controls?
- Do you expect your company’s supply sources to be impacted? What are your current inventory levels?
- How do you expect your equity/debt offerings, fund raising campaigns or capital-intensive projects underway to be impacted?
- Has COVID-19 contributed to an increase in revenue expectations?
- Are you communicating with investors, lenders or donors to outline these time changes?
- Do you have a succession plan in place?
- Did you apply for a government assistance program?
- What impact will COVID-19 have on your workforce?
- If you are anticipating layoffs, how many employees will be affected?
- Will the company be using outside counsel for guidance on issues pertaining to the pandemic?
Prepare for your renewal
Be prepared to answer the above questions and put the following best practices into place ahead of your next policy renewal:
- Create a pre-renewal strategy. Whether a large or small business, now is the time to work with your broker to strategize on the best way to approach your renewal. Is it time to change carriers? Should you take a higher deductible? Lower or increase limits? Self-insure? Consider all your options. Make a goal for your renewal and do what you can on your end to make it happen.
- Tell your story. Understand your risk profile (the good and challenges) and be honest about your challenges. Are you raising capital, making a small acquisition, expanding your workforce, downsizing, losing a key executive or experiencing increased oversight? Let them know what you’re doing to combat issues and why you’re a good organization for them to bet on.
- Identify coverage restrictions and subjectivities. Watch out for new exclusions some carriers are now putting on policies. Examples include a COVID-19 exclusion as well as absolute bodily, bankruptcy or financial insolvency exclusions. These are all considered critical restrictions that remove or limit coverage value for you and your people.
- Get out to market early and push for immediate underwriter input. Ask your broker to reach out to your carrier early and get you in the door as soon as possible to secure your next policy early. Underwriters have added several questions to their process. You are best suited to be able to review and answer their inquiries earlier in the process versus at binding.
Contact HUB to get the coverage you need and to learn how to develop a business continuity plan that will help protect your business and employees from the unexpected. Get the latest information, guidance and resources on Coronavirus (COVID-19) to help you protect what matters most on our Coronavirus Resource Center.