Polled Canadian executives believe general liability policies provide necessary protection, but coverage gaps may exist: Chubb Canada survey

Many executives at Canadian for-profit private companies interviewed as part of the 2013 Chubb Private Company Risk Survey fail to buy tailored insurance solutions, thereby foregoing the opportunity to transfer risk.

The survey – conducted in February 2013 by Pollara and released Monday – canvassed 302 companies, almost two-thirds of which have fewer than 100 employees. It marks the third such survey commissioned by Chubb Canada since 2007.

“The survey continues to provide evidence that private companies overlook the opportunity to transfer risk through tailored insurance solutions, relying instead on general liability insurance policies, which may leave gaps in coverage,” notes the survey highlights report, Worth the Risk? Select Canadian findings are available in an Executive Summary.

Survey findings include the following:

• 52% of respondents experienced an event with respect to management liability exposures in the last three years;

• 84% reported awareness of risk and/or losses with respect to management and professional liability;

• 33% were concerned about litigation from vendors, competitors or a government regulator;

• 39% cited concern with employee theft of corporate assets; and

• 31% expressed concerns with a breach of privacy; and

• 42% of respondents that provide services for a fee were concerned about allegations of negligence with respect to providing those services.

“The lack of purchasing dedicated, tailored policies for the exposures noted in the survey is surprising,” Michael Densham, assistant vice president, Chubb Specialty Insurance for Chubb Insurance Company of Canada, says in a statement from the company.

Pointing out that “the current market environment allows for economic transfer of the costs related to these risks,” Densham opines “all companies, no matter their size, should seek the counsel of a trusted advisor with respect to their risk management and risk transfer decisions. It’s the only way to ensure the coverage they believe they have truly provides for the exposures and the needs of the company and its executives.”

Survey results indicate that particular risks for which tailored insurance solutions are not being purchased include the following:

• allegations of misrepresentation, mismanagement or negligence in oversight of the company against members of the Board of Directors or officers of the company;

• negligence in service provision;

• allegations of wrongful dismissal, discrimination or harassment in the workplace;

• employee theft of funds, inventory or equipment from a company or client; and

• breaches of privacy with respect to confidential information and notification to affected individuals.

A chart in the report offers a look at what non-purchasers of policies had to say. In all, 58% of respondents believed D&O liability is already covered under the company’s general liability policy; 42% thought the policy covered employment practices liability (EPL); 45% noted it covered E&O liability; 25% said it covered fiduciary liability; and 32% said it covered cyber liability.

With regard to what executives feel could cause the most financial damage to their respective companies, 21% of executives expressed concern about an EPL charge or lawsuit, notes the survey summary. This was followed by 18% who cited an E&O lawsuit (for companies providing services for a fee only), 13% who said employee theft, 14% who mentioned a D&O lawsuit, and 10% who noted a cyber breach.

The survey results disclose total costs in the range of six figures in many circumstances for companies with as few as 25 employees, including the following.

• D&O costs of as much as $250,000 disclosed by respondents with 25 to 100 employees;

• average total costs within the context of D&O liability, for respondents with 50 to 99 employees, was $105,000; and

• total costs disclosed related to E&O exposures ranged up to $500,000.

The report also notes that many private companies are contemplating activities in the next 12 months that could result in an increase of certain risks.

For, example, 71% of companies plan to expand the workforce (thereby increasing risk of, among other things, failure to hire/promote or discrimination and harassment); 31% plan to undertake a major merger/acquisition (increasing their risk of a D&O liability lawsuit alleging misrepresentations during negotiations); and 19% plan to reduce the workforce (increasing their risk of an employment practices liability lawsuit alleging wrongful termination).