This document discusses key insurance coverages for entrepreneurial companies including property, product liability, cyber risk, intellectual property infringement, and international risks. It also outlines common risks that keep CFOs awake including financial, human capital, intellectual capital, operational risks, regulatory risks, and credit risks. The document then discusses building scalable insurance programs and the importance of management liability insurance including directors and officers liability, employment practices liability, fiduciary liability, and ERISA bonds. It concludes with an overview of privacy and cyber risks and coverages.
2. 2| 2| 2|
What Keeps CFOs Up
at Night?
Financial Capital: sourcesand uses of funds, reserves
HumanCapital: talent management, benefits
Intellectual Capital: trade secrets, patents, IP
Operational Risks: contracts, supply chain, customers
Regulatory Risks:SEC, FDA, HIPAA, etc.
Credit Risks:A/R, vendor management, sales growth
Management Liability / Personal Liability
Cyber & Network Security
3. 3| 3| 3|
Risk Exposures Facing
Entrepreneurial &
Growth Companies
Property - EDP Equipment, Networks and Data
Fire, vandalism, theft, earthquake, flood, etc.
Product Liability and Errors & Omissions
“Failure to Perform” resulting in a financial loss to customers
Cyber Risk - First Party andThird Party
Network Security – unauthorized access, transmission of virus of malicious
code, theft/destruction of data, cyber extortion, business interruption
Privacy – PII/PHI data exposed by hacker, lost device, rogue employee,
physical records, payment card information
Media – Advertising & Personal Injury, infringement of Intellectual Property
Intellectual Property
Infringement of copyright, trademark, trade dress, patent
International
Fund Raising &Transactional Risks
4. 4| 4| 4|
Key Functions of
Business Insurance:
4 C’s of Insurance
Claims
Protect balance sheet
Protect personal assets of Directors and Officers
Compliance
Statutory Requirements
Workers Compensation
Auto Liability
Currency to do business
Building and Equipment Leases / Debt and Loan Covenants
Customer Contracts
Ability to attract outside directors to sit on the board
CreateStrategic Advantages
Using insurance to add value to your company & customers
5. 5| 5| 5|
Building Scalable
Insurance Programs
How does a company protect itself from supply chain risks?
When should a company secure Professional Liability (E&O) and
Cyber Risk insurance?
What about the timing of purchasing Directors & Officers (D&O)
insurance and what are the key things to lookfor?
International Insurance - what does my company need to know
about complying with local country insurance statutes?
When should I consider the following insurance products?
Employment Practices Liability (EPL)
Kidnap & Ransom (K&R) & BusinessTravel and Accident (BTA)
Representations and Warranties
Trade Credit Insurance
Intellectual Property and Patent
Product Recall Coverage
7. 7| 7| 7|
A Unique & Holistic
Approach to
Management Liability
Insurance
8. 8| 8| 8|
Why Does D&O
Insurance Exist
Directors and Officers have commonlaw duties to the
companies which they serve.
Duty of Care (Diligence)
Duty of Loyalty (No Self-Dealing)
Duty of Obedience
Breaches of these duties subject D&Os to lawsuits from any/all
stakeholders such as investors (shareholders), creditors,
employees and government agencies.
Most company by-laws allow the company to indemnify its
directors and officers for breaches of certain duties.
Companies can “transfer” the risk of indemnification of its D&Os to an
insurance company.
If indemnification is not available, D&Os are personally liable.
D&O Insurance addresses both of these issues.
9. 9| 9| 9|
Why Buy Private D&O
Insurance?
For most companies, the biggest benefit of a private company
D&O policy is the built-in EPL coverage
While true D&O claims are rare, the likelihood increases as the
investor base expands
Independent directors will want personal asset protection
If IPO is a possible exit strategy:
Initial representations (warranty statements) are made before prospectus is
drafted
Only need to sign new warranties for increased limits
Establish relationship with D&O markets
If acquired, private company can be converted to run-off policy
and protect individuals post-closing
10. 10| 10| 10|
Typical D&O Claims Breach of Duties
Mismanagement
Breach of Contractual
Obligation
Government or Regulatory
Investigations
Misleading Financial
Information
Bankruptcy
Fraud / Misrepresentation
Employment Practices Claims
where Directors andOfficers
are involved
Intentional Interference with
Contractual Relations
Breach of Implied Covenant of
Good Faith
Breach ofJoint Venture
Agreements
Allegations of StockOption
Backdating
11. 11| 11| 11|
Employment Practices
Liability Insurance
Covers organization and employees for claims brought by
employees alleging wrongful termination, discrimination,
harassment, and other employment-related torts.
ALWAYS excluded on standard General Liability andWorkers’
Compensation policies.
Frequency of employment-related claims continues to rise each
year. Many are small in value but they can beexpensive to
investigate and defend.
Policies can be broadened to cover harassment and
discrimination claims brought by non-employees (customers,
vendors, etc.). This is known as “third-party coverage”.
12. 12| 12| 12|
Typical Employment
Practices Claims
Wrongful dismissal, discharge,
or termination of employment.
Failure or refusal to hire or
promote.
Wrongful discipline or
demotion.
Negligent employment
evaluation
Unlawful discrimination based
on age, gender, race, color,
national origin, religion, sexual
orientation, pregnancy,
disability, or other class
protected under applicable
federal, state or local law.
Sexual or other workplace
harassment.
Invasion of privacy.
Defamation (including libel and
slander).
Wrongful infliction of emotional
distress or mental anguish.
Retaliatory treatment.
Violation of civil rights.
FMLA violations.
13. 13| 13| 13|
Other Management
Liability Coverages
Fiduciary Liability
Provides personal liability coverage for fiduciaries for claims arising out of
the legal liability associated with their fiduciary responsibilities. The
exposure to claims arises out of the Employee Retirement Income Sectary
Act (ERISA) of 1974.
ERISA Bond
Covers acts of dishonesty against the assets of employee benefit plans. This
bond is placed for the benefit of the plan and the plan's beneficiaries. This
bond will not protect the trustees themselves from liability claims and is
completely distinct from fiduciary liability insurance. ERISA law requires
you cover 10% of plan assets up to a maximum limit of $500,000
($1,000,000 if invested in your own securities).
Employee Benefit Liability Insurance
Employee Benefit Liability Insurance policies cover many claims arising out
of errors or omissions in the administration of employee benefit plans,
including the failure to enroll an employee in the plan as well as the
rendering of improper advice related to employee benefit plans.
14. 14| 14| 14|
Menu Driven Approach
Many insurers are providing a single
policy with options to add multiple
coverage lines (D&O, EPL, Fiduciary,
Crime, K&R) for private companies
Creates a customized comprehensive
coverage program under one policy with
one carrier
These policies are similar to a package
policy for property and liability coverage
16. 16| 16| 16|
NOT DEFINED
Canbe any or all of the following:
Loss of Personally Identifiable Information(Clients
& Employees)
Failure to PreventUnauthorized Access
(Virus/Hacking)
Network orSecurity Failure (and Subsequent Loss
of Income)
Misuse/Infringement ofCopyright,Trademark,
Patent
Etc.
What is Cyber
Liability?
17. 17| 17| 17|
Outside, Inside &System Failures
Hackers & Unauthorized Access
Viruses,Trojans & Malicious Codes
Employees – Intentional & Unintentional
System Failure
Vendors
Failure to ComplyWithCompanyPolicies
Cloud
Denial ofService
Phishing
Where do the threats
come from?
18. 18| 18| 18|
What You Need to
Know
Your informationnetwork will be compromised.
Accept it!
Physical security and cybersecurity are linked.
Target breach, hackers got access to the network through the
HVAC system
Cyber damage goes beyond the dollars
Reputational damage with customers
Increased cost of new systems for prevention (EMV)
Everything cannot be protected equally
Identify the crown jewels and really, really protect them
Walls are probablyhigh enough – look at detection
20. 20| 20| 20|
Data Breach Cost
Mitigation Strategies
Don’t Be a Hoarder:Limit the amount of data stored;
regularly purge obsolete or unnecessary data
Stick to the Essentials:If you don’t need details on a
customer, don’t collect it
Keep aWatchful Eye: Monitor network activity using
system logs to know if/when/howyou were breached
Ask for Help: In the event of a breach, it is essential to
respond appropriately and in a timely manner. Use
experts to help with this process.
Be Prepared: Proactive risk management can thwart
attacks and curry favor with regulatorsif breached
21. 21| 21| 21|
How to Respond to a
Breach
Have A Plan!
67% of companies sufferingData Breaches are out
of business within 6 months.*
Breach Response Plan should be formalizedand
tested
Proactive compliance with industrysecurity
standards (PCI-DSS, SOC-2, HIPAA, etc.)
Risk Management, IT, and Legal should all be
involved
Insurance Carriersofferturn-keysolutions
*(Symantec Corporation. 2013Internet SecurityThreat Report. Vol. 18. California: Symantec Corporation,
2013.)
21
24. 24| 24| 24|
Diversified Insurance
Group
Contact Information
Regan Guth, ARM
Senior Vice President
Diversified Insurance Group
Tel: 801.325.5080
diversifiedinsurance.com
rguth@digrisk.com