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5 Reasons Your Insureds Need Executive Risk Coverage

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The way your clients perform business today is vastly different than how they operated two years ago. From faster-than-expected digital transformation to new M&A risks, supply chain and staffing challenges, the C-suite now faces greater risks at every turn. And with greater risk, your clients will need greater protection — starting with prevention. Coalition’s 2022 Executive Risks Report found that 36% of small businesses suffered a directors and officers (D&O) or employment practices liability (EPL) claim in 2021. The cost of EPL losses average $68,867 while D&O lawsuits average $120,590. The solutions brokers and insurance companies have traditionally offered business leaders to safeguard their physical assets are no longer enough. Executives require fast-moving and ongoing support to not only fight an identified threat but alert them to one before it happens. Here are 5 reasons your insureds need Executive Risks coverage in today’s high-risk environment:

1. Executives can’t prevent what they can’t predict.

The last two years have shown us the meaning of unpredictable. From a global pandemic to the biggest supply chain disruption in modern history, business leaders are constantly confronted with elements and challenges out of their control. One wrong or slow decision could easily lead to a lawsuit. Business leaders need specialized coverage, beyond the business’ general liability (GL), to protect them from personal litigation and risk. This protection includes D&O and EPL. Each coverage provides a layer of protection to directors and officers as they make decisions for the organization by covering the costs associated with a potential lawsuit and settlement. Coalition’s Executive Risks coverage helps your insureds foresee the major risks that impact their businesses — whether that’s due to an M&A or an employee retaliation lawsuit — to enable better response, thereby avoiding the potential risks of surprise or miscalculation.

2. As third-party dependencies grow, liability exposure multiplies.

As businesses move from a process-driven world to a platform-driven world, they are making connections with more third-party vendors than ever before. Third-party services can provide companies with specialized experience, efficiency, outside perspective and scalability that they might not be able to reach on their own. For example, more and more businesses are outsourcing their customer service. While doing so could lead to the ability to scale, it also brings with it a risk to reputation with bad service or operational risk with misuse of customer data. However, they also bring with them increased risk. In many cases, businesses are sharing digital assets with these providers, including operational and customer data. The actions or failures of these third-party companies can call a director or officer’s decisions into question if these assets are put at risk or used inappropriately. Note: Doing so, of course, does not rid the businesses of the responsibility in protecting this data or the liability that may arise out of failure to do so.

3. Executive Risk catches what general liability misses.

Unfortunately, many small businesses mistakenly believe that their GL policy or umbrella insurance will take care of every possible lawsuit. While GL covers the legal defense costs, judgment and settlement expenses of bodily injury and property damage claims, it is not designed to cover risks involving the decisions directors and officers make on behalf of the company, or professional errors and omissions that may result in a lawsuit. Executive risk coverage with D&O and EPL policies allow business leaders to stay resilient for many risks not covered by a GL policy.

4. The right coverage attracts the best talent and investors.

Effective and agile decision making can easily be burdened by exhaustive consideration of possible legal exposure. For that reason — plus the potential damaging impact of a lawsuit — top talent is only going to consider businesses with the right protection in place. Similarly, most private equity and venture capital companies require businesses to carry D&O insurance before they invest to protect their stakeholders.

5. The investment is small compared to potential litigation costs.

The SBA Office of Advocacy reports that for every $1 million a business earns, they spend $20,000 on lawsuits. Statistics also tell us that an employment lawsuit is three times more likely to happen than for an office to burn down. Even if a lawsuit doesn’t go to trial or arbitration, the costs of defending are often catastrophic to small businesses, forcing them to cut operational or workforce expenses to make up for the loss.

Discover how to protect your clients from executive risks

Learn more about how Coalition’s Active Insurance and executive risk options can enhance your broker services by reading our 2022 Executive Risks Report, and reach out to execrisks@coalitioninc.com to place your customer’s Executive Risk coverage.