Even the most sophisticated risk manager can benefit from a comprehensive audit of his or her company’s insurance program, as well as its contracts with suppliers or customers that may include indemnification obligations. This review can help a company determine if its insurance is meeting its needs, identify and address any problem areas, and provide a starting point for discussions with insurance brokers and counsel about developing a more carefully tailored insurance program. The review should also incorporate the latest policy enhancements trending in the marketplace and developments in insurance coverage litigation.
In conducting this analysis, there are key issues to consider:
The current program. Insurance and other components of a risk management program should work together as seamlessly as possible. What types of coverage does the company currently have? Are there any gaps in coverage? Does the program adequately address the company’s business needs? What are the relevant questions or areas of concern regarding these existing policies?
Operations. What are the contours of the company’s operations? Are expansion plans on the horizon? If so, how and where?
Claims history and risk assessment. Review the history of legal claims, including those based on employee relations issues. What were or are the areas of greatest risk? The company’s litigation history should reveal areas of exposure that may not have been considered during previous policy renewals. For example, if the company has been subject to an administrative or regulatory investigation, whether formal or informal, was the claim tendered to the insurer? If so, was there coverage? Insurance for such investigations is now more readily available, and should be a point of negotiation with your underwriter. Similarly, does the business have any cyberliability exposure? Cyberliability policies have come a long way in recent years, so even if one was purchased recently, be sure to consider whether increased coverage is available.
Definition of “claim.” How does each policy in your program define “claim” (or, for an occurrence-based policy, how does it define “occurrence”)? Is it broad enough or narrow enough to meet the company’s needs? Are there enhancements available in the marketplace that should be considered?
Named insureds. Who are the intended insureds under each policy? If the company has subsidiaries, are they covered under the program? Are independent contractors utilized and, if so, are they covered, perhaps under the EPL and D&O policies? Do any contracts require insurance coverage for a third party? If so, ensure that the “additional insured” endorsement is correct and satisfies the company’s obligations to that third party.
Benchmarking. When is the last time the company reviewed benchmarking data of D&O limits? Setting the appropriate limits ultimately depends on a number of factors, including the company’s appetite for risk. However, one common way to test the adequacy of limits is to review limits purchased by other companies in similar peer groups, either based on revenues or asset size.
Outsourcing issues. To the extent the company is manufacturing its products in any other country or otherwise outsourcing, it should evaluate whether a policy written in the United States will provide coverage abroad, and whether the laws of the jurisdictions in which it is doing business impose any additional insurance requirements. Many countries require that insurance be written on policy forms approved by their respective regulatory authorities and/or by insurers that have been approved by those authorities. The penalties for failing to comply with some countries’ requirements can be quite severe. Also, consider whether worldwide kidnap and ransom insurance is needed, particularly if executives will be traveling to facilities located abroad, especially if those plants are located in “hot-button” areas.
Looking ahead. If the company intends to expand, consider the implications of that expansion on insurance coverage. Does the policy provide coverage for acquired companies, or at least allow the option to expand coverage to include the newly acquired company for an additional premium? Take into account the specific insurance requirements for the intended jurisdiction.