Insurance · Risk Management

Using a Fact Based Approach to Buy Insurance

Concept or Concrete?  Are you buying insurance based off of a concept that your broker is proposing or off of facts?  If you have perfect coverage with no gaps that is fine concept is fine, but otherwise you should be thinking about buying off of fact.

What do I mean by fact?  As a broker, I review prospects policies and report to them what isn’t covered that easily and inexpensively could be covered.  I am not talking about small issues, but issues that could dramatically impact a company’s balance sheet, six and seven figure coverage gaps.  You probably believe you don’t have these coverage gaps and you wouldn’t be alone.  I would say 60-70% of prospects we talk to believe they have no coverage issues or minor issues, but for 95% of the companies we have performed a coverage audit for we found at least one or more 6 figure coverage gaps.

Most brokers will come in and say we want to do this and that for you.  They won’t actually do what no one, not even brokers, want to do and that is read your policies and tell you what you have and what you don’t have.  Guess what?  That is what we do and that is why we can sell on fact.  We tell you what is good, bad and ugly and then how we can fix it.

One last nugget from my trip to Boston:

Trillium

I hope everyone has a great weekend!

Insurance · Risk Management

Tesla, Harvey Weinstein, and Board Composition for California Companies – A Review of News that Could Impact the D&O Market

There is a lot of news recently that relates to D&O insurance recently and I thought I would do a quick run-down for you.

First we have Tesla and Elon Musk.  If you haven’t seen or heard, Musk and Tesla were each fined $20 million for Musk’s tweet saying they were going private and that funding was secured.  It turns out that neither of this statements were accurate.  In addition, Musk was forced to relinquish his seat as chairman of Tesla.  This penalty made clear that comments made on social media will have repercussions for companies.  I doubt this is the end of this saga as there will most likely be shareholder litigation.

Will this cause D&O underwriters to greater examine the Twitter, Facebook and Instagram accounts of public company leaders?  Typically, a D&O underwriter is most concerned about the finances of a company and the direction they are going in but could this change over time?  We will see have to wait and see.

In other news from California, the legislator passed a law requiring public companies to have at least 1 woman on their board by the end of 2019.  By 2021 companies with at least 5 board members must have two women and boards with six or more members must have at least three women on their board.  Right now 25% of public companies based in California have no women on their board.  Companies that fail to meet these requirements will face penalties.  You can learn more about this here.

Finally, in probably the least surprising news, the insurance companies that were affiliated with Harvey Weinstein have declined coverage and have argued they do not need pay for his defense.  A number of carriers have declined coverage so far with Travelers and Chubb being the most noteworthy.  There are a number of policy provisions cited in their reasoning to decline coverage, including the sexual abuse & molestation exclusion and that Mr. Weinstein’s actions were outside his duties as a director and/or officer.

Financial Loss · Insurance

Common Question Friday- Why Do I Need Cyber Coverage?

This week’s common question is – “Why do I need cyber insurance if I don’t sell anything and therefore don’t take personal information from clients?”

In the past this was asked by pretty much every company that did not sell directly to consumers but the tide is definitely shifting where almost every company needs some cyber coverage.  Cyber coverage is unique in that covers losses you incur (first party) and losses to third parties do to your negligence.  Some of the coverages include:

  • Notification Costs (1st party)
  • Extra Expense and Business Income (1st party)
  • Cyber Extortion Costs (1st party)
  • Forensic Costs (1st party)
  • Settlements and Damages related to a breach (3rd party)
  • PCI fines (3rd party)
  • Legal Defense (3rd party)

This is just sample of what a cyber policy covers and is not inclusive.  Some claims examples:

  • If you have employee information you have what is referred to as personal identifiable information and if that is compromised you would need to notify those possibly impacted and pay for credit monitoring.
  • A malicious party could use you as a gateway into hacking into a larger organization, much like what happened with the Target breach. Here the hackers got into Target’s system through the HVAC contractor.
  • If you have trade secrets a hacker could steal those secrets and then extort you. Your supply chain could be disrupted causing a business income loss much like we saw with Merck last year.

These are a few examples of claims that could happen to any company regardless if they have a commercial product or not.  Cyber insurance is relatively inexpensive and the risk is there for everyone.  If you are not at least getting quotes I strongly suggest you do as every day the world becomes more dependent on IT.

Financial Loss · Insurance · Property Insurance

How We Helped a Client After Their Product Was Condemned

I am going to share with you a story about a new client that left their prior insurance broker because of a bad loss they suffered that could and should have been covered.  I am going to explain why they choose us but I want to be clear, getting a new client because they suffered an uncovered loss is not a good way to win clients and not something we prefer.  We would much rather work with a client prior to a loss and uncover coverage gaps so that if they are unfortunate and have a loss and least it is covered by insurance.

The loss involved a fire at their premise that destroyed roughly 25% of their product.  The remaining 75% of the product was condemned even though it appeared not to be damaged.  The insurance company covered the 25% that was damaged but not the 75% that was condemned.  The condemned property should have been covered and could have for a very little amount of additional premium.

After the loss the client decided it was time to move on from their large fortune 500 broker that had a team dedicated to life science clients.  The client did an informal RFQ and asked the competing brokers to analyze their current coverage, current pricing, and coverages they might be missing.

What we found was pretty staggering.  From a pricing standpoint, they were in good shape, and they had most of the same coverages that we would have recommended.  The problem was that the coverage terms within those policies left the client significantly more exposed than they realized.  In addition to the condemned property coverage gap, we found a handful of other six and seven figure coverage gaps that the prior broker had missed and which our competition had failed to point out.  It is never pleasant when a loss uncovers a coverage gap and that is what we strive to avoid with our clients and prospects.  At the end of the day, our deep dive coverage analysis is what won us the business.  We had equal capabilities to the other brokers when it came to pricing and placement expertise, but we shined when it came to correctly identifying what their current coverage lacked and how to fix it.

If you are a life science company and would be interested in learning more about our coverage audit please email me at matt.corcoran@alliant.com.  We spend our time and resources doing this analysis, not yours.

Financial Loss · Insurance · Litigation

Common Question Friday – Why Do I Need D&O Insurance?

Each week, I take a common question I get from clients and prospects about insurance and answer it.  If you have a question you would like me to answer please feel free to shoot me an email at matt@mattcorc.com.

The question today is – “Why do I need Directors & Officers (D&O) insurance?”  A similar question is, “I don’t have a board of directors so why do I need D&O insurance?”

These questions which often get asked together are geared toward private companies.  It should be fairly obvious why a public company would need D&O insurance, but if not, the objective of both private and public company D&O insurance is the same…to protect the personal assets of Directors and Officers.  When you are a public company the risk is much greater.  Now let me explain why you need D&O and what it can protect you against.

Let’s start with companies that are startups and have no Board.  There are no outside investors yet and perhaps no product, but even then you could be at risk because claimants can be much more than just shareholders.  Claimants can include competitors, regulators, creditors and even customers to name just a few.  Here are some examples of how a claim could arise from someone other than a shareholder:

  • Recruiting a top sales executive from your competitor who was under contract could result in your competitor filing a suit against you
  • Claiming your company has the only approved product in the marketplace when it is not and your sues alleging false advertising.
  • Creditors allege your devised a plan to divert assets prior to filing bankruptcy.

These are just examples and there are plenty more, but notice that none of these claims were shareholder claims.  Many times insureds have done nothing wrong but that won’t prevent a claimant from filing suit.  In that case the D&O policy will respond and pay your legal fees up to the policy limit.  As you can imagine, the costs just to defend claims, even if frivolous, can pile up quickly.  Remember the objective of the D&O policy is to protect your personal assets, a claim does not have to be successful for your personal assets to be at risk and bankrupt your company.

Oftentimes clients tell me, “I am just a small company and no one would bother suing us” or “I have run five companies prior and never had a D&O claim.”  First, if you cause financial harm to another company, a creditor or any other third party no matter how small, you are at risk because people do not like to lose money.  If they speak to an attorney the probability of action against you and your company increases exponentially as do the potential costs.  Just because you have never had a claim does not mean it won’t happen in the future, D&O claims are infrequent but when they occur they are expensive. The average claim cost (award and legal fees) is well into the six figures.  Most companies that have had D&O claims could have at one point said they never had a claim before either, but in a litigious world the odds of a claim occurring are only increasing.

Once you start raising money and have outside investors the opportunity for claims increases substantially.  A large number of companies fail or lose value and this can lead to claims even if you went out of business for reasons out of your control.  As you raise money you typically put together a board of directors and at this point you usually don’t have a choice on whether to carry D&O insurance, prospective board members will require you carry D&O and may even stipulate the limit you need to carry if you want them to sit on your board.

At the end of the day, D&O insurance should be in place if you have any personal assets (house, cars, etc.) to protect.  As an officer or director of a company you can be named in a suit so regardless of how your business is structured you are still at risk.  What is often overlooked by brokers is explaining to clients what D&O covers.  If clients knew the risks that are covered by a D&O policy they would be more open to securing this coverage and less confused on why they actually need it.

Feel free to reach out at matt@mattcorc.com or matt.corcoran@alliant.com.  You can also reach me via phone at (610) 635-3326.

Insurance · Life Sciences

Common Question Friday – Why Do Pre-Clinical Companies Need Insurance?

One of the most common questions I get asked comes from Pre-Clinical Life Science companies is why do I need insurance?

I agree that pre-clinical life science companies have about as little risk as a company can have.  Why they need insurance really comes down to contracts, investors and statutory regulations.

If the company enters into a lease the lessor will typically require general liability insurance.  This insurance is very inexpensive and it usually makes sense to bundle this with property insurance as any additional cost would be negligible.  The property insurance can include research equipment, scientific animals, office furniture, and R&D Business Income among other things.  A typical policy can start under $500 depending on the total value of your property.

If you have employees you will be required by the state you are domiciled in to have workers compensation insurance.  This will cover your employees if they get injured at work for medical costs and lost wages.  Again, this should be low cost and is based on your total payroll, benefits should not be included when calculating wages.

Product Liability insurance for pre-clinical companies is sometimes required if the technology is being transferred from a third party such as a university.  It drives me nuts when third parties require a pre-clinical company to put this into place before a trial will commence because there is .001% exposure and it is expensive for my clients compared to the other coverages.  If you cannot negotiate this out of the contract it is very important that your broker knows which carriers have flexibility on their minimum premiums for scenarios like this.  If your broker tells you that the minimum premium is $4,000 they are mistaken.

D&O insurance, this would be needed if you have raised capital and have a board of directors.  This coverage protects the personal assets of directors and officers of the company and outside board members typically require you have this in place.

These are the coverages that are usually required even when you are pre-clinical.  If you are close to signing a lease or transferring tech I would recommend you have an insurance broker to review the insurance requirements in the contracts and ask them to pencil out what the economics would look like.  Your broker should also be able to tell you if certain requirements are excessive to what the industry norms are so that you can try and negotiate them down.

Feel free to reach out to me here if you have questions or comments.

As always, I appreciate any feedback and if you have topics you would like me to talk about please send me an email.  You can email me at matt.corcoran@alliant.com or matt@mattcorc.com.

Catastrophe · Insurance · Property Insurance

Hurricane Florence – Property Insurance Tips

Hopefully Hurricane Florence weakens and has a minimal impact on the East Coast of the United States, but if we are not so lucky I wanted to share some coverages that you might have available in your property policy that will help mitigate the financial loss.

  • Debris Removal – often this has a sub-limit but it can help with cleanup costs
  • Catastrophe Allowance – not standard in all policies, but can give you some additional coverage if your limit is not sufficient to replace your property
  • Denial of Access – Can pay Business Income in the event you cannot access your premise because of damage to a nearby property
  • Expediting Expense – an additional coverage that responds when you make temporary repairs to get back into business
  • Equipment Breakdown – can be especially important if your HVAC system gets damaged and you have temperature sensitive product
  • Claims Expense – Can pay for a third party to help you work through the claim, especially important in business income claims
  • Ordinance or Law – Can help pay for demolition, increased cost of construction, loss to undamaged portion of the building
  • Preservation of Property – the safeguards you put in place to protect against loss can be covered
  • Business Income and Contingent Business Income – provides coverage for income lost while your premise is down from a covered cause of loss or a key supplier/customer
  • Civil Authority – provides coverage for loss of income because the government deemed a road or bridge unsafe or closed it due to a covered peril
  • Extra Expense – added cost to relocate

These are just a few examples of where coverage can be found.  You do want to be aware that not all policies will have these coverages, but most of them should be found in even the most basic of policies.

A couple of things to be aware of that can work against insureds.

  • Coverage can be impacted by deductible, particularly wind deductibles that might differ from your regular deductible. In wind prone areas you might incur a percentage deductible instead of a flat dollar amount.  For example, your deductible might be 5% of total insured values subject to a minimum of $50,000
  • Wind deductibles could also impact Business Income and Contingent Business Income
  • Flood is often excluded
  • If you have National Flood Insurance Program (NFIP) coverage they adjust the loss on an “actual cash value” basis, meaning it is replacement cost minus depreciation.
  • NFIP coverage is limited in total limits available
  • If you are in a flood zone but have no NFIP coverage but have flood coverage through your insurance carrier it could be subject to a deductible equivalent to what NFIP would have covered.

I hope this is help that is ultimately not needed.  For those in the states that could be impacted, I wish you the best and hope there is little or no impact to you, your business and your families.