Economic downturns and recessions bring about a variety of challenges for businesses, from the obvious risk of lower revenues and higher costs, to less discussed concerns such as potential cyber-attacks, fraud, and legal actions.
Some companies may look to cut back on insurance coverage during difficult times to lower costs, but this can have a dramatic impact on the amount of risk you take on. During a recession, having a management liability insurance portfolio is crucial to protect the business entity, management, and the bottom line.
A management liability insurance portfolio includes a variety of critical insurance policies:
Directors & Officers Liability
This liability policy, also called D&O insurance, covers the company, executives, and board members if stakeholders bring suit. Unfortunately, during times of hardship like a recession, it’s not uncommon for stakeholders to sue if a company’s financial suffering causes them to suffer as well.
Investors and creditors of a business that has failed (or is failing) may closely analyze how their losses occurred and could pursue legal action against the company’s officers. For example, they may claim breaches of fiduciary duties, fraud, or other wrongdoing.
Whether these assertions have merit or not, suits can bring about significant defense costs for the company and its directors and officers.
D&O Liability insurance is a crucial way to safeguard the company’s balance sheet by ensuring coverage for claims against the business entity as well as indemnifiable claims made against the officers.
Professional Liability insurance, also known as Errors and Omissions (E&O) coverage, protects against claims brought by clients for errors and omissions in the performance of professional services.
For example, this coverage could be crucial if your business makes a major mistake that costs a client thousands of dollars. It could also be important if, unfairly, a customer blames and sues your business for losses that are not your fault.
Employment Practices Liability
Employment Practices Liability Insurance, or EPLI, protects against lawsuits by employees alleging wrongful termination, discrimination, harassment, or a hostile work environment.
Economic downturns make a variety of these types of lawsuits more likely. According to a Nera Consulting report, wrongful discharge claims alone increased by an estimated 21% during the last recession when compared to prior years. You could also face age discrimination claims if older employees are laid off. Alleged wage or hour violations could spike if employees get more desperate.
While “employment at will” offers some protection, it does not eliminate the risk of wrongful termination claims. EPLI policies can protect you from employment-related lawsuits.
A Fiduciary Liability policy protects the administrators of the company and employee welfare and retirement plans from claims that they mismanaged those employee benefits. This can help cover legal defense or losses that occur if a fiduciary makes bad investment decisions, mishandles records, or shows negligence in their hiring of service providers for the plans.
In a recession, there is an increased possibility of employee benefit plans losing value. This policy protects the plan administrators so they can’t be held personally liable for losses suffered by plan participants (employees).
As the economy goes down, crime tends to go up (and vice versa). This happens with workplace crime and fraud as well. As employees encounter financial pressure and rising debt, they are more likely to commit workplace fraud – namely employee embezzlement. Crime insurance is essentially a fidelity bond for employee theft.
Protecting your business with NEWITY + Mylo
It’s tempting to cut costs by reducing or eliminating insurance coverage during a downturn, but this is shortsighted – especially for management liability insurance. Recessions bring about an increase in exposures, meaning that these difficult times are actually when businesses should be paying even more attention to how adequate their policy limits and coverage amounts are.
To protect your business in any economic situation, NEWITY teamed up with Mylo Insurance to provide the best, most customizable coverage available, regardless of your size or scope.
Mylo is part of Lockton Companies – the world’s largest independent insurance broker – with a 50+ year track record of connecting people and businesses to the right coverage. Mylo has won a variety of awards in recent years, including 2021 Insurtech 100, 2021 Insurtech Breakthrough Award, Insurance Business Hot 100, and 2021 Agent for the Future.
Mylo doesn’t sell their own insurance, meaning they can give you a truly objective recommendation based on the specific needs of your business. With access to more than 200 insurance companies, they provide many products that can be of interest to business owners, including management liability coverage.