ESOP companies should be aware of several important changes that are taking place in the markets for Directors & Officers (D&O) Insurance and Fiduciary Liability Insurance. Here is a quick summary of important trends:
Premium increases have leveled off. For the past several years, renewal premiums on existing policies had been on the rise. However, for the past several quarters premiums have not been rising, and we expect them to remain level for the remainder of 2017 for accounts that are claim free and in good financial standing. Minimum premiums for D&O and Fiduciary type policies generally start at $5,500 for a $1,000,000 limit of liability.
Broader protection is available on most policies. Insurers have been expanding their coverage, and definitions within the policy are being amended to provide protection for:
- Pre-claim investigations.
- “Settlor” type claims.
- Automatic coverage sub limits for HIPAA, 502© penalties, PPACA penalties, and voluntary compliance program payments, where insurable.
In addition, the definition of a “claim” is being enhanced to include a request to toll the statute of limitation.
Underwriting newly formed ESOPs. Lately, D&O and/or Fiduciary Liability insurance companies have been more cautious when looking to underwrite ESOP companies. Often an insurer will request and review the independent share valuation prior to offering or placing this coverage.
Many insurers have adopted their own ESOP questionnaire to help them underwrite an ESOP company. New transactions will be scrutinized even more than before, and often will require firms to engage an independent, outside trustee.
Smaller transaction will be covered under Representation and Warranty Insurance. Although not a new concept, Representation and Warranty Insurance is playing a more important role in protecting the buyer or seller of a business. While this type of insurance typically was placed on larger transactions in the past, it has become more available on smaller transactions for mergers and acquisitions.
This insurance can help reduce or eliminate an escrow or purchase price holdback at a closing. The cost of this insurance usually starts at about 3-4 percent of the policy limit.
Cyber liability protection is being sought. More businesses today are purchasing cyber liability insurance to protect themselves from the costs and interruptions associated with cyber extortion and business interruption.
This coverage was first introduced several years ago as a way to protect businesses against losing customers’ credit card, personal identification, and/or health information. Today, there is an increasing threat of business interruptions a result of a security breach.
Cyber Liability insurance policy forms also are being broadened to provide more protection for the policy holder. “Social Engineering” is being offered on most “crime” policies to protect the insured when “human hackers” trick employees through scams such as impersonation/pretexting or phishing.
Cyber Liability Insurance is becoming more affordable with annual premiums starting at $1,500 for a $1,000,000 limit of liability.
For more information, or if you have questions, email Jeffrey Gelburd, CPCU, ARM, Vice President, Murray, an employee-owned insurance broker. Murray administers an affinity insurance program endorsed by The ESOP Association (TEA) offering ESOP companies D&O, Fiduciary, Employment Practices, Crime, Cyber, and RWI.
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