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January292014

Limit Your Management Liability With The Right Insurance For Your Business

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In today's rapidly changing business climate, business management professionals often find it challenging to stay atop of the latest regulations and legislation related to their industries. Businesses typically are exposed to at least one of the following risks that potentially could lead to a costly lawsuit: management mistakes, employment practices, criminal damage and cybercrime claims. Management liability insurance, also known as executive liability insurance, is designed specifically to help business owners cope with the many challenges they face in their day-to-day duties by providing a customized shield against lawsuit exposure that may result from the most prevalent threats.

Why is this insurance needed?

The cost of litigation can have a tremendous financial burden on small to midsized businesses. Although legal action does not occur too often for most businesses, when it does, the costs can be dire. On average the costs of legal action can range from $225,000 up to $5 million, making even a victory bittersweet.

"By purchasing a comprehensive management liability policy with a broad mix of coverage, businesses can have a contingency in place so that if a worst case scenario occurs, they will be able to withstand the storm," said Reed Moraw, president of Cadence Insurance, an affiliate of Cadence Bank.

In addition to covering costs associated with the defense, liability insurance policies also can be used to help cover settlement and judgment costs which may arise.

How does this insurance work?

In designing a management liability insurance policy that affords the greatest protection, it's recommended that a business owner meet with an insurance professional to discuss key details of the company and its operations. A review of the corporate financials, loss history, employee handbook and other supporting details is conducted is most cases. From there, the insurance professional will work to identify key risk areas which should be addressed by the insurance policy.

"When shopping for management insurance, it is vital to meet one-on-one with an insurance agent knowledgeable about evaluating exposure because different industries are subject to different risks and regulations. This results in a unique risk profile for every business," Moraw said. For example, construction firms often need higher injury coverage, while a software development company may put most of their coverage towards computer crime protection.

Although these policies are designed to help protect business professionals from a variety of threats, as liability policies are custom tailored around each insured company, the premiums are reasonably affordable since business owners only need to purchase the coverage which matters most to their companies. Likely, there will be some limitations and exclusions to the policy that your agent can explain.

How do I know what policies to pick?

Management liability policies can be complex; however, when it comes to figuring out your needs, business owners don't need to do it themselves. Aside from working with a reputable insurance broker to ensure the proper policies are purchased, running all insurance paperwork by a corporate attorney can provide additional insight as many corporate attorneys have a duty to help their clients take proactive approaches to minimizing liability.

Do I need to do anything to maintain my coverage?

After choosing an insurance policy, it is crucial to ensure the insurance company is kept informed of changes in the business which can affect the premiums of the policy. Changes should be discussed with your agent before, not after, they take place. Examples of crucial information include: changes in sales volume, shifts in the company offerings, purchases of real estate, and hiring or firing employees. When in doubt, it is always better to be as transparent with the insurance company as possible because failure to disclose important facts may cause coverage to be lost.