It’s relatively easy for large corporations to stay abreast of their risk exposure, and to take the right insurance cover for their needs. This will certainly include Directors’ and Officers’ Liability and suitable cover for employment practices, cybersecurity and accident cover.
But as recently as ten years ago, only 1% of SMEs were found to have adequate insurance in all these areas. That is changing, thanks in part to an increasing awareness among SMEs of their vulnerability to the proliferation of cybercrime. Beginning the conversation about cybersecurity usually leads to a discussion of the obligations of a business to protect its employees’ and customers’ private information secure. And that’s when a lot of SMEs start to see other areas of exposure than they can and should cover with insurance.
Part of the problem for SMEs has been that if they attempted to insure comprehensively they faced a blizzard of paperwork, and tended to end up paying for risk elements that simply weren’t relevant to their business. There has until recently been no management liability insurance cover specifically designed for SMEs. The last decade, however, has seen the creation of flexible cover options specifically targeted at SMEs. These new policies are known in the industry as “blended”, since they address exposure both of the company and of its directors and officers.
No. In the first place, Directors’ and Officers’ (D&O) liability, as its name suggests, covers only the liability of office-holders, not of other managers for whose acts and omissions their employers may be liable.
For SMEs, a far more flexible form of cover is usually appropriate – one which covers not merely their statutory obligations, but the full range of management risks to which they may be exposed. Here are some areas of risk that we find are typically neglected:
It’s only the major hacks that make the news, but 60% of all cyberattacks in Australia are suffered by SMEs, not big companies. Under the Privacy Act, 1988, businesses are obliged to take reasonable steps to protect private information they hold about employees, customers and third parties. The cost of a breach, should you be found negligent, can be devastating, and must be insured against in a business liability policy.
While there is a growing awareness of cybersecurity risks, there is surprisingly little appreciation of the increase in successful claims for unfair dismissal, bullying and other workplace malpractice. Claims for health and safety breaches have seen a similar rise. Any of these can seriously damage an SME, and even if a claim is eventually defeated the costs of doing so can be crippling. A single court judgement can leave you exposed in ways you have previously not contemplated. Business Liability cover can give you the protection you need.
It’s a fair bet that at any one time, in some court somewhere, the limits of employers’ liability for the health and safety are being tested. And while health and safety are generally better understood by SMEs, we still see businesses with alarming shortfalls in their cover.
Management Liability insurance can address these areas of exposure, but like any field of insurance, the laudable goal of simplification results in standard policies that may be deficient in one or other area of risk. SMEs should always be prepared to spend some time with their broker, who can educate them, with the aid of recent examples of losses in the real world, about the risks they face. The broker will then recommend levels of cover that are appropriate to the operations of the business.