Zurich package addresses variety of management exposures
By Sandra Carcione
Ken Sroka is CEO of Zurich North America's Specialties business unit.
Do your mid-sized and smaller corporate clients have D&O coverage? Probably. Do they have EPL coverage? Maybe. It's less likely, however, that they have fiduciary liability, crime, or ransom and extortion coverage.
There's good news on that front, however. Zurich North America's Management Solutions Group has assembled a cohesive package of coverages that address all of these liability risks.
According to Ken Sroka, CEO of Zurich's Specialties business unit, the number of lawsuits affecting the management of smaller companies has increased substantially. He suggests it is important that there be as few gaps as possible in coverage for the diverse liabilities that confront the managements of these companies. "While everybody knows about the huge settlements and judgments hitting large companies, judgments are not insignificant for smaller companies. The impact of even a $100,000 settlement can be very damaging to privately held companies," says Sroka.
Also, the management of privately held companies has limited time to devote to dealing with claims, which can damage the business. "They can't afford to divert time and energy away from their core responsibilities," he says.
Along with the fact that lawsuits against mid-sized and smaller companies are increasing, Sroka says there is rampant self-deception among the managements of such companies that tells them they don't need coverage. "Many of these companies either dismiss the statistics by saying, 'This won't happen to us,'" says Sroka, "or they think their general liability policy or directors and officers (D&O) liability policy provides adequate coverage."
Dick Clarke, senior vice president at J. Smith Lanier & Co., a large brokerage firm in Atlanta, says he thinks executives of private companies are more aware of the need for D&O coverage because of the corporate governance scandals that have been in the news in the past couple of years. However, they often don't realize that EPL and fiduciary liability may be larger sources of claims for their companies.
"Especially since Sarbanes-Oxley [Public Company Accounting and Investor Protection Act of 2002], all companies are held to a higher standard regarding corporate governance issues, whether they are generally subject to these regulations or not," says Clarke. "However, in my opinion, and backed by industry statistics, the likelihood of management liability claims among private companies could be ranked as follows:
1. Employment Practices Liability
2. Fiduciary Liability
3. Crime
4. D&O
5. Kidnap and Ransom
"When it comes to management liability risks, we have to distinguish between frequency and severity," Clarke says. "While D&O claims may be more costly to defend, EPL and other kinds of claims are definitely more frequent."
Zurich's Management Solutions package provides mid-sized, privately held companies with up to $25 million in aggregate D&O, EPL, fiduciary liability, kidnap and ransom, and employee crime coverage. (See sidebar for specifics on individual coverages.)
"The advantage of our package is that a company gets comprehensive, coordinated coverage from a single insurer," says Sroka. "Typically stand-alone policies can have gaps that leave companies vulnerable. Also, when one insurer handles the fiduciary coverage and another the D&O, there can be conflicts and delays about who pays for what claims."
Clarke agrees that a package approach like Zurich's is an efficient and easy way to buy all the management liability coverage a private company may need. "Especially in the area of employment practices liability, just about every company will have a claim at some point," he observes.
An integrated approach
The key to the cohesive nature of Zurich's Management Solutions products is an integrated approach and consultative way of operating.
"Our claims professionals are often involved with an account from day one. They work closely with underwriters to make sure that policy wording opens the way to clear coverage decisions and a clear-cut response when a claim occurs," says Sroka. "Claims personnel and underwriters interact constantly to make sure that clients have the right product for their exposure."
Another advantage Zurich provides is experienced internal claims counsel who work closely with insureds during the claims process. Moreover, while insureds have the freedom to choose their own defense attorneys for claims, Zurich can provide them with a roster of leading counsel to aid in their defense.
Zurich goes beyond defending and paying traditional EPL or D&O claims and can help restore the company's assets taken as the result of employee crime. "Say a company has assets of $30 million and an employee embezzles $4 million over a couple of years," says Sroka. "In real assets, that can comprise a company's entire cash flow. Also, when the word gets out, creditors will call in their debts, and the situation could snowball. This type of situation has driven companies into bankruptcy."
In addition to comprehensive coverage, Zurich strives to make sure clients have the most effective product at the right price. One way it does that is through its micro-segmentation strategy. Sroka explains: "Several years ago, we segmented our customers by many factors to make sure clients do not overpay or have to subsidize those who should pay more."
Working with agents
Do agents need specialized expertise to sell Zurich's specialty products? Sroka says it's not necessary. "We've eliminated the need for agents to be experts. Our underwriters take them through the component parts of the package," he says. "Also, we can respond to any technical questions clients have and will even go on sales calls with an agent and sit with the client to explain the product."
Clarke affirms that clients want to know how D&O and other management liability coverages work, and to understand exclusions and other details. "In addition to exclusions and indemnification specifics, they want to know more about the stability and reputation of the companies offering this coverage," he observes.
As a major U.S. commercial property/casualty company, Zurich has broad penetration of the independent agent distribution network, and it also is in touch with markets locally through a regional structure. "Sometimes agents who sell our general P-C products bring the Management Solutions Group into the picture when needed. Others deal directly with Specialty," says Sroka. He notes that because Zurich has a global network, it also can serve businesses that conduct operations outside the United States.
Zurich also has a variety of risk management tools that can help companies reduce their exposures in various areas. "Our consultative underwriting approach, combined with written risk management material, online services and educational programs, can help customers reduce their risks in EPL, D&O, fiduciary, crime and various management liability areas," Sroka says.
Why should agents check to make sure all their corporate clients have sufficient coverage in these areas? Sroka says, "If they do not, another agent might." *
The author
Sandra Grant Carcione is a Chicago-based business writer/editor who has specialized in the financial services industry--insurance, banking and accounting--for more than 20 years. Most recently she was editor of agent publications for CNA Insurance.
For more information:
Zurich North America
Web site: www.zurichna.com
A Look at Zurich's Management Solutions Package
Zurich North America provides an integrated management liability solution to meet the diverse risks that middle market, privately held companies face. A wholly new risk management approach offers directors and officers liability, integrated with employment practices liability, and makes it easily combinable--in a single form, with fiduciary, crime and kidnap, ransom and extortion coverages.
Customer Profile:
Middle market privately held organizations with:
* less than $250 million in assets
* less than 750 employees
Management Solutions Coverages:
D&O provides broad coverage for directors and officers and the entity (if purchased). The coverage includes employment practices liability protection for directors and officers and employees. Outside directors liability is provided for officers serving on boards of private and nonprofit organizations.
A definition of claims includes civil, criminal, regulatory and arbitration proceedings and investigations against insureds.
D&O individual or aggregate limits of liability are up to $25 million on both a primary and excess basis for middle market companies and up to $10 million for emerging growth companies.
Employment practices liability insurance (EPLI) protects against claims made by or on behalf of employees for a wrongful employment act, including allegations of wrongful termination or treatment, discrimination and harassment.
* Coverage purchased in conjunction with D&O
* Defense costs outside of policy limits
* Risk management services include:
* access to an online database of timely employment-related legal information
* an individual membership in the Society for Human Resource Management (SHRM)
Crime insurance protects against fidelity losses such as those due to employee dishonesty, credit card forgery, computer fraud, wire transfer and destruction of property.
* Enhancements can include special needs like investigation expenses and global exposures.
Fiduciary liability insurance protects the lawful responsibility of sponsor companies, ERISA and non-ERISA pension and welfare plans, directors, officers, employees, volunteers and others with fiduciary responsibility.
Kidnap, ransom & extortion (KR&E) coverage provides the resources to respond to the financial demands of a kidnapping or extortion crisis.
Limit of Capacity--
Choose from a full line of management liability products up to one aggregate limit of $25 million.
Ken Sroka explains the advantages of Zurich's Management Solutions Group package for mid-sized privately held companies. Among them, he says, is that "a company gets comprehensive, coordinated coverage from a single insurer."