“I don’t need management liability insurance because…”
Every time we come across this statement, we find it’s more the result of misinformation around management liability (ML) insurance as a product, rather than a genuine lack of need.
That’s because ML is designed to close a key protection gap for today’s modern businesses: protecting the management of the company, employees and sometimes the entity itself from any allegation for potential wrongdoing which needs to be investigated or defended. As a modular insurance product, it covers directors and officers liability (D&O), employment practices liability (EFL), entity cover, fiduciary liability, crime, cyber and privacy and kidnap and ransom.
To help you convey the full value of ML, we asked our experts to state their top myths and reveal how you can respond to them effectively.
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'We’re not big enough…’
Company size is no indication of whether a business will experience an ML claim or not. All it takes is for an allegation of wrongdoing to be made against any director or officer in the course of their management duties, which may need to be investigated or defended—even if the case doesn’t reach court.
Investigating and defending allegation can not only be costly, but the director or officer in question may need to foot the bill themselves if the company is unable or unwilling to assist, or if D&O cover is not in place to protect them.
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‘We outsource our HR…’
Some companies choose to outsource their HR departments to a third party, at a lower cost than building a department in house. However, while the third party can establish policies, support recruitment, help with employee relations and so on, it cannot absolve the company from liability for employment-related issues.
In fact, as the third party is not fully immersed in the company’s culture, they are unlikely to recognize issues as they develop. And when the problem is eventually found, it may be too late to resolve. Here, ML insurance is key in giving support in what could amount to very significant defense and potential settlement costs.
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'We’re a family-run business…’
It’s tempting to think that as a family-run business, there is little chance of any allegations of wrongdoing being made against anyone. However, our claims data shows this is not the case. In fact, some of our most contentious claims stem from family-run businesses, be it a husband and wife-led business or one that has been passed down through the generations.
It’s possible for family members to pull in different directions, and since the claims that result are often emotive, they can take more time than usual to resolve—and as a result, cost more money. Therefore it’s vital to get the right cover in place, giving the business confidence of financial stability if this type of event does arise.
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‘We’re a private company…’
A common belief is that if a business is private, then its liability is limited. However, this applies more to shareholders, who are protected to the extent of their investments, than directors and officers whose liability remains unlimited.
If the company is experiencing an allegation of wrongdoing, does not have D&O insurance in place, and is unable or unwilling to protect them, the directors and officers will have no choice but to support their own defense.
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‘It’s too expensive…’
The majority of small to mid-market companies do not require a bespoke product. ML insurance can be fairly standardized, therefore coming at an inexpensive price.
If a company is publicly traded operating in multiple territories, then it stands to reason that its D&O requirements will be more bespoke, influencing the price of the product the company needs.
Getting started with management liability insurance
Today’s directors and officers are under more scrutiny than ever, as the companies they work for face an increasingly complex landscape of risk. Taking out ML insurance is the best way of transferring away risk, empowering individuals and entities to focus on what matters: their business.
Find out more about CFC’s management liability insurance by contacting ml@cfc.com.
