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Directors and Officers Insurance

PROTECTING YOUR BUSINESS FROM LIABILITY ISSUES

While business insurance policies by definition provide coverage for the business itself, individual company officers may still be personally exposed to financial losses resulting from a lawsuit. To protect your company’s leadership, you may want to consider purchasing directors and officers (D&O) liability insurance.

What D&O Covers

Directors and officers is a type of liability insurance that covers individuals for claims made against them while serving on a board of directors and/or as an officer. This type of policy can be written to cover directors and officers of for-profit businesses, privately held firms, not-for-profit organizations and educational institutions. There are several elements—called “Sides”—to a D&O policy, including:

  • Side A—Protects a corporation’s directors and officers when the company cannot indemnify the individuals.
  • Side B—Reimburses the organization when it indemnifies the individuals, thus protecting the company’s balance sheet
  • Side C—Also known as “entity coverage,” this eliminates disputes of coverage allocation when both the directors and officers and the insured organization are named as co-defendants in a securities lawsuit.

A wide range of claims against a business have the potential to target company leadership for responsibility—and liability. Business leaders can be held responsible for a company’s failure to comply with regulations and to provide a safe and secure workplace. In addition, if a company is found liable for losses because of operational failures and mismanagement, directors and officers may be exposed to liability as well. The types of claims that may target company leadership individually as well as the company itself typically include:

  • Shareholder suits over company or stock performance.
  • Creditor or investor suits over mismanagement or dereliction of fiduciary duties.
  • Misrepresentation in a prospectus.
  • Decisions exceeding the authority granted to a company officer.
  • Failure to comply with regulations or laws.
  • Employment practices and HR issues.
  • Pollution and other regulatory claims.
  • Cyber liability.

What’s Excluded?

Standard exclusions in a D&O policy typically include:

  • Fraud.
  • Personal profiting.
  • Accounting of profits, and other illegal compensation exclusions.
  • Pending and prior litigation.
  • Prior (late) claim notice.
  • Bodily injury/property damage.
  • Insured versus insured claims.
  • ERISA.

The Added Value of Protecting Company Leaders

Aside from paying for claims against company leadership, there are several other benefits to carrying directors and officers liability insurance, including a company’s ability to:

  • Retain Strong Leaders—Many potential directors and officers will be reluctant to join your business if they are exposed to personal liability. D&O liability insurance helps address this issue.
  • Attract Investment—Venture capital and private equity firms often require companies to have D&O coverage before they make an investment.
  • Cover Legal Fees—Even if directors and officers are exonerated of wrongdoing, your business may incur substantial legal fees in responding to a lawsuit against your leadership. If you have a D&O policy, your company’s legal fees will likely be covered.

There are several types of D&O policies, defined by what liabilities, legal costs and other exposures are covered. You should select coverage based on risks and how your business is organized. Your company’s bylaws or articles of incorporation may provide certain protections—or indemnification—for directors and officers. You should seek guidance from your insurance professional about this somewhat complex, technical type of insurance.

Source: U.S. Department of Transportation, “Director’s and Officers Insurance” http://www.iii.org/ website. Accessed March 1, 2016. http://www.iii.org/article/directors-and-officers-insurance

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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Product Liability Insurance

People_HappyKidsPRODUCT LIABILITY INSURANCE

Product liability insurance protects the manufacturer, distributor or seller of a product from legal liability resulting from a defective condition that caused personal injury or damage associated with the use of the product. Product recall insurance, a specialty product designed to cover the costs associated with recalls, is also available from some insurers.

According to a February 2015 report from the advocacy group Kids in Danger, recalls of children’s products declined 34 percent in 2014 to 75, the lowest number in the 14 years of data collected by the organization. In 2014 there were 338 incidents reported prior to recall of the 75 children’s products, for an average of 5 incidents per recalled product.  The 2014 average represents an improvement from 2013, when the average was 14 incidents per recalled product. Injuries related to the recalls were down 85 percent, and deaths fell from 11 in 2013 to three in 2014. Children’s product recalls in 2014 totaled almost 17 million units.

PRODUCT LIABILITY INSURANCE, 2005-2014

($000)

Year Net premiums written (1) Annual percent change Combined ratio (2) Annual point change (3)
2005 $3,546,009 4.2% 131.1 -21.3 pts.
2006 3,621,671 2.1 77.8 -53.3
2007 3,265,035 -9.8 99.8 22.0
2008 2,777,587 -14.9 124.0 24.2
2009 2,365,681 -14.8 124.0 (4)
2010 2,050,619 -13.3 157.1 33.1
2011 2,320,540 13.2 160.0 2.9
2012 2,575,225 11.0 102.7 -57.3
2013 2,718,879 5.6 155.3 52.6
2014 2,674,183 -1.6 138.5 -16.8

(1) After reinsurance transactions, excludes state funds.
(2) After dividends to policyholders. A drop in the combined ratio represents an improvement; an increase represents a deterioration.
(3) Calculated from unrounded data.
(4) Less than 0.1 point.

Source: SNL Financial LC.

View Archived Tables

MEDIAN AND AVERAGE PERSONAL INJURY JURY AWARDS BY TYPE OF LIABILITY, 2013

(1) Represents the midpoint jury award. Half of the awards are above the median and half are below.

Source: Reprinted with permission of Thomson Reuters, Current Award Trends in Personal Injury, 54th edition.

View Archived Graphs

INSURERS’ LEGAL DEFENSE COSTS

Most lawsuits are settled out of court. Of those that are tried and proceed to verdict, Jury Verdict Research data show that in 2013 the median, or midpoint, plaintiff award in personal injury cases was $68,218, down 9 percent from $75,000 in 2012.

Travelers Insurance 2015 Business Risk Index showed that legal liability was the fourth-highest rated worry for business leaders in the United States, down from No. 3 a year earlier. Of 1,210 business leaders surveyed, 56 percent indicated they worry about it somewhat or a great deal.

Businesses address their liability concerns through many types of risk management, of which insurance is an important component. A Swiss Re study indicated that in 2013 the United States had the largest commercial liability insurance market in the world both in premium volume ($84 billion) and as a percentage of Gross Domestic Product (0.50 percent). More than half of all global liability premiums were written in the United States.

TOP 10 LARGEST COMMERCIAL LIABILITY MARKETS, 2013

($ billions)

Direct premiums written, 2013 Liability as a percentage of
Rank Country Liability Total nonlife GDP (1) Total nonlife GDP (1)
1 U.S. $84.0 $531.2 $16,802 15.8% 0.50%
2 U.K. 9.9 99.2 2,521 10.0 0.39
3 Germany 7.8 90.4 3,713 8.6 0.21
4 France 6.8 83.1 2,750 8.2 0.25
5 Japan 6.0 81.0 4,964 7.4 0.12
6 Canada 5.2 50.5 1,823 10.3 0.29
7 Italy 5.0 47.6 2,073 10.5 0.24
8 Australia 4.8 32.7 1,506 14.7 0.32
9 China 3.5 105.5 9,345 3.3 0.04
10 Spain 2.2 31.0 1,361 7.1 0.16
World $160.0 $1,550.0 $61,709 10.3% 0.26%

(1) Gross Domestic Product.

Source: Swiss Re, sigma, No. 4/2014.

Insurers are required to defend their policyholders against lawsuits. The costs of settling a claim are reported on insurers’ financial statements as defense and cost containment expenses incurred. These expenses include defense, litigation and medical cost containment. Expenditures for surveillance, litigation management and fees for appraisers, private investigators, hearing representatives and fraud investigators are included. In addition, attorney legal fees may be incurred owing to a duty to defend, even when coverage does not exist, because attorneys must be hired to issue opinions about coverage. Insurers’ defense costs as a percentage of incurred losses are relatively high in some lines such as product liability and medical malpractice, reflecting the high cost of defending certain types of lawsuits, such as medical injury cases and class actions against pharmaceutical companies. For example, in addition to $1.2 billion in product liability incurred losses in 2014, insurers spent $953 million on settlement expenses, equivalent to 77.4 percent of the losses.

DEFENSE COSTS AND COST CONTAINMENT EXPENSES AS A PERCENT OF INCURRED LOSSES, 2012-2014 (1)

($000)

2012 2013 2014
Amount As a percent of
incurred losses		 Amount As a percent of
incurred losses		 Amount As a percent of
incurred losses
Product liability $873,860 114.7% $1,166,236 75.1% $952,997 77.4%
Medical malpractice 1,686,009 45.7 1,656,257 53.3 1,873,874 43.2
Commercial multiple peril (2) 2,022,739 46.0 2,096,543 37.7 2,083,103 39.1
Other liability 4,959,838 24.8 4,914,374 25.4 4,365,569 21.1
Workers compensation 3,071,093 12.3 3,018,372 12.3 3,357,813 12.9
Commercial auto liability 1,091,434 10.4 1,207,681 10.7 1,266,046 10.6
Private passenger auto liability 4,353,427 6.7 4,600,395 6.8 4,714,584 6.5
All liability lines $18,058,400 13.9% $18,659,858 14.0% $18,613,986 13.1%

(1) Net of reinsurance, excludes state funds.
(2) Liability portion only.

Source: SNL Financial LC.

 

Source: U.S. Department of Transportation, “Product Liability” http://www.iii.org/ website. Accessed March 1, 2016. http://www.iii.org/fact-statistic/product-liability

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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Product Liability, Recall and Contamination Insurance

Houses-Buildings_WarehouseProduct Liability

If your company designs, manufactures, distributes or sells a physical product—anything from toys to building supplies to macaroni and cheese—you’ll want to strongly consider purchasing product liability coverage. This coverage helps provide financial protection in the event that the use of your product results in property damage, personal injury or death. Product liability coverage can be added to your general liability insurance policy or purchased as a stand-alone policy and can be tailored to the types of risks to which your business may be exposed.

What Could Go Wrong?

As you weigh the option of purchasing product liability coverage, it’s worth considering the ways in which your company could be found at fault for damages resulting from the use of your product. You might think that your product—or your role in a product’s “stream of commerce”—is at little risk of causing damage, but you may be exposed to a range of less visible risks. Consider these factors:

  • Product Design, Manufacturing, Assembly and Packaging—Although your company’s role in the life of a product may be limited, you may still be liable in a product lawsuit. For instance, you might provide a single small part of a larger product; or your design might be safe, but a contract manufacturer produces a flawed product; or your company simply repackages and distributes products manufactured elsewhere. In all of these instances, your company could be liable—or at least will have to pay to legally defend itself—in the event of a product lawsuit.
  • Directions, Warnings and Flawed Marketing—How you communicate about your product can result in product liability risk. For instance, if instructions, warnings or promotions lead to misuse of your product resulting in property damage or injury, your company could be found liable.
  • Partner, Investor and Affiliate Relations—Partner or affiliate companies may also require that you have product liability insurance. For instance, a retailer may not sell your product unless you have product liability coverage. Financial backers might also require this coverage before making an investment. Ultimately, failure to carry product liability insurance can result in missed business opportunities.

Covering the Costs of a Product Recall

Product recalls can be costly and logistically complex, as well as damaging to your company’s reputation so you may want to include—or purchase separately—product recall coverage. Product recall insurance can help defray the operational costs of a recall as well as the costs of re-establishing your company’s brand.

While product recalls may be relatively rare, their frequency is on the rise, driven in part by stronger consumer protection regulations. Product safety problems can also be caused by the globalization of supply chains and manufacturing overseas in countries that do not have the same standards and enforcement policies as the European Union or the United States. Product recalls can be financially devastating and can even put a company out of business. No organization is immune to the risk of a product recall—even those with the best safety records, operational controls and manufacturing oversight.

Product recall insurance will help you cover a wide range of costs, including:

  • Advertising and promotional costs to launch the recall.
  • Shipping costs to collect recalled products.
  • Product destruction and disposal costs.
  • Product replacement, repair and distribution costs.
  • Fees to wholesalers, distributors and retailers.
  • Business interruption costs.
  • Reputation repair and management costs.

Contamination Insurance

If your product might be accidentally or maliciously contaminated—for instance food, cosmetics or pharmaceuticals—you may also want to consider adding contamination coverage along with product liability and recall insurance.

Contamination, whether the result of criminal activity or simple human error, is occurring with alarming frequency in the U.S. and around the world. Companies that fall victim to these incidents often incur staggering costs in damage control and in the restoration of profits and brand reputation. When a contamination incident occurs, it can attract media attention that has a disastrous impact on the public’s confidence in the affected product or brand.

Product contamination insurance will generally provide coverage for the following:

  • Recall costs, including laboratory analysis and product transportation.
  • Announcement costs, such as radio, television and Internet placements.
  • Third-party recall expenses.
  • Loss of gross profits, typically up to 18 months.
  • Rehabilitation expenses.
  • The value of contaminated products.
  • Crisis response and consulting expenses, including public relations and recall consultants.
  • Increased cost of operations.
  • Extortion costs.

Coverage for adverse publicity and government recall may be included or added to a contamination policy as an extension.

Your insurance professional can help you identify your product liability risks and weigh your coverage options.

 

Source: U.S. Department of Transportation, “Product Liability, Recall and Contamination Insurance” http://www.iii.org/ website. Accessed March 1, 2016. http://www.iii.org/article/product-liability-recall-and-contamination-insurance

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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IN: Product Liability, Recall and Contamination Insurance

Dear Valued Customer,

Product liability insurance helps provide financial protection in the event that the use of your product results in property damage, personal injury or death. This issue of “———————-“ focuses on protecting your business from liability issues.

If you’re asking yourself what could possibly go wrong? It could be product design, manufacturing, assembly and packaging, directions, warnings and flawed marketing. Product recalls can be costly and logistically complex, as well as damaging to your company’s reputation so you may want to include—or purchase separately—product recall coverage. Please connect with us for more information.

We appreciate your continued business and look forward to serving you.

Kind regards,

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Product Liability Insurance

People_KidWithToolsAndBucketPRODUCT LIABILITY INSURANCE

Product liability insurance protects the manufacturer, distributor or seller of a product from legal liability resulting from a defective condition that caused personal injury or damage associated with the use of the product. Product recall insurance, a specialty product designed to cover the costs associated with recalls, is also available from some insurers.

According to a February 2015 report from the advocacy group Kids in Danger, recalls of children’s products declined 34 percent in 2014 to 75, the lowest number in the 14 years of data collected by the organization. In 2014 there were 338 incidents reported prior to recall of the 75 children’s products, for an average of 5 incidents per recalled product.  The 2014 average represents an improvement from 2013, when the average was 14 incidents per recalled product. Injuries related to the recalls were down 85 percent, and deaths fell from 11 in 2013 to three in 2014. Children’s product recalls in 2014 totaled almost 17 million units.

PRODUCT LIABILITY INSURANCE, 2005-2014

($000)

Year Net premiums written (1) Annual percent change Combined ratio (2) Annual point change (3)
2005 $3,546,009 4.2% 131.1 -21.3 pts.
2006 3,621,671 2.1 77.8 -53.3
2007 3,265,035 -9.8 99.8 22.0
2008 2,777,587 -14.9 124.0 24.2
2009 2,365,681 -14.8 124.0 (4)
2010 2,050,619 -13.3 157.1 33.1
2011 2,320,540 13.2 160.0 2.9
2012 2,575,225 11.0 102.7 -57.3
2013 2,718,879 5.6 155.3 52.6
2014 2,674,183 -1.6 138.5 -16.8

(1) After reinsurance transactions, excludes state funds.
(2) After dividends to policyholders. A drop in the combined ratio represents an improvement; an increase represents a deterioration.
(3) Calculated from unrounded data.
(4) Less than 0.1 point.

Source: SNL Financial LC.

View Archived Tables

MEDIAN AND AVERAGE PERSONAL INJURY JURY AWARDS BY TYPE OF LIABILITY, 2013

(1) Represents the midpoint jury award. Half of the awards are above the median and half are below.

Source: Reprinted with permission of Thomson Reuters, Current Award Trends in Personal Injury, 54th edition.

View Archived Graphs

INSURERS’ LEGAL DEFENSE COSTS

Most lawsuits are settled out of court. Of those that are tried and proceed to verdict, Jury Verdict Research data show that in 2013 the median, or midpoint, plaintiff award in personal injury cases was $68,218, down 9 percent from $75,000 in 2012.

Travelers Insurance 2015 Business Risk Index showed that legal liability was the fourth-highest rated worry for business leaders in the United States, down from No. 3 a year earlier. Of 1,210 business leaders surveyed, 56 percent indicated they worry about it somewhat or a great deal.

Businesses address their liability concerns through many types of risk management, of which insurance is an important component. A Swiss Re study indicated that in 2013 the United States had the largest commercial liability insurance market in the world both in premium volume ($84 billion) and as a percentage of Gross Domestic Product (0.50 percent). More than half of all global liability premiums were written in the United States.

TOP 10 LARGEST COMMERCIAL LIABILITY MARKETS, 2013

($ billions)

Direct premiums written, 2013 Liability as a percentage of
Rank Country Liability Total nonlife GDP (1) Total nonlife GDP (1)
1 U.S. $84.0 $531.2 $16,802 15.8% 0.50%
2 U.K. 9.9 99.2 2,521 10.0 0.39
3 Germany 7.8 90.4 3,713 8.6 0.21
4 France 6.8 83.1 2,750 8.2 0.25
5 Japan 6.0 81.0 4,964 7.4 0.12
6 Canada 5.2 50.5 1,823 10.3 0.29
7 Italy 5.0 47.6 2,073 10.5 0.24
8 Australia 4.8 32.7 1,506 14.7 0.32
9 China 3.5 105.5 9,345 3.3 0.04
10 Spain 2.2 31.0 1,361 7.1 0.16
World $160.0 $1,550.0 $61,709 10.3% 0.26%

(1) Gross Domestic Product.

Source: Swiss Re, sigma, No. 4/2014.

Insurers are required to defend their policyholders against lawsuits. The costs of settling a claim are reported on insurers’ financial statements as defense and cost containment expenses incurred. These expenses include defense, litigation and medical cost containment. Expenditures for surveillance, litigation management and fees for appraisers, private investigators, hearing representatives and fraud investigators are included. In addition, attorney legal fees may be incurred owing to a duty to defend, even when coverage does not exist, because attorneys must be hired to issue opinions about coverage. Insurers’ defense costs as a percentage of incurred losses are relatively high in some lines such as product liability and medical malpractice, reflecting the high cost of defending certain types of lawsuits, such as medical injury cases and class actions against pharmaceutical companies. For example, in addition to $1.2 billion in product liability incurred losses in 2014, insurers spent $953 million on settlement expenses, equivalent to 77.4 percent of the losses.

DEFENSE COSTS AND COST CONTAINMENT EXPENSES AS A PERCENT OF INCURRED LOSSES, 2012-2014 (1)

($000)

2012 2013 2014
Amount As a percent of
incurred losses		 Amount As a percent of
incurred losses		 Amount As a percent of
incurred losses
Product liability $873,860 114.7% $1,166,236 75.1% $952,997 77.4%
Medical malpractice 1,686,009 45.7 1,656,257 53.3 1,873,874 43.2
Commercial multiple peril (2) 2,022,739 46.0 2,096,543 37.7 2,083,103 39.1
Other liability 4,959,838 24.8 4,914,374 25.4 4,365,569 21.1
Workers compensation 3,071,093 12.3 3,018,372 12.3 3,357,813 12.9
Commercial auto liability 1,091,434 10.4 1,207,681 10.7 1,266,046 10.6
Private passenger auto liability 4,353,427 6.7 4,600,395 6.8 4,714,584 6.5
All liability lines $18,058,400 13.9% $18,659,858 14.0% $18,613,986 13.1%

(1) Net of reinsurance, excludes state funds.
(2) Liability portion only.

Source: SNL Financial LC.

 

Source: U.S. Department of Transportation, “Product Liability” http://www.iii.org/ website. Accessed February 10, 2016. http://www.iii.org/fact-statistic/product-liability

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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Covering Losses with Business Interruption Insurance

Misc_Money_AnalyzingGraphBUSINESS INSURANCE IN DEPTH

Standard property insurance covers physical damage and losses—furniture destroyed in a fire, a storm-damaged office building or stolen equipment. This coverage can help you pay the costs of rebuilding or replacing damaged property. But what about losses resulting from your business’s inability to operate because of property damage? For this type of loss, you’ll need business interruption insurance, also known as business income insurance.

Coverage to Keep Your Business Afloat

When your business is shut down due to a damaging event—a fire or windstorm, for instance—you lose revenue. In addition, your business is still obligated to pay its bills and may incur additional expenses as a result of the disruption. Fortunately, if you have business interruption coverage, many of these costs and losses can be reimbursed. Generally, business interruption insurance will cover:

  • Revenue lost due to the closure.
  • Fixed expenses, such as rent and utility costs.
  • Expenses of operating from a temporary location.

Your policy may cover additional extra expenses associated with the disruption—for instance, advertising to announce your new temporary location.

To receive appropriate reimbursement from your business interruption coverage, there must be direct physical damage to the property resulting from an insured event.

Determining a business interruption loss involves establishing what the business would have earned had the loss not occurred. Insurance companies take into account past tax returns, profit and loss statements, projected sales and non-continuing expenses. It is crucial to keep very accurate records so that your business interruption losses can be properly projected.

Obtaining Business Interruption Coverage

Business interruption coverage is not sold as a stand-alone policy. It can be obtained as part of the following types of policies:

  • Commercial Property Insurance—You can add an endorsement or rider to commercial property insurance that will extend the policy’s coverage to business interruption losses.
  • Business Owners Policy (BOP)—Intended for small businesses, this type of insurance package policy includes property, liability and business interruption coverage.
  • Commercial Package Policy (CPP)—CPPs are flexible policies that can be customized with a range of options, including business interruption coverage.

Other types of policies may include business interruption coverage for certain circumstances. For instance, some kidnap and ransom policies will cover business interruption loses resulting from a covered event.

Understanding the Limitations of Business Interruption Coverage

While business interruption insurance can help your business survive a disaster, there are limitations and exceptions to this type of coverage. If you obtain business interruption coverage as part of a commercial property policy, the coverage will only extend to events delineated in the core coverage. If your property insurance does not cover wind damage, you cannot receive business interruption insurance if your company is displaced because of a windstorm.

There are also time limits on business interruption coverage, so be sure to discuss limitations and exceptions with your insurer or insurance professional, and whether purchasing extended business income coverage is a good option for your business.

 

Source: U.S. Department of Transportation, “Covering Losses with Business Interruption Insurance” http://www.iii.org/ website. Accessed February 10, 2016. http://www.iii.org/article/covering-losses-with-business-interruption-insurance

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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Protecting Your Business Against Contingent Business Interruption and Supply Chain Disruption

Insurance_InsurancePolicyAndMoneyBUSINESS INSURANCE IN DEPTH

In today’s global marketplace, more and more businesses rely on overseas suppliers. If your company’s operations depend on the timely delivery of raw materials, parts or finished products from distant locations, then your business could be hurt when these goods are delayed or fail to arrive altogether. Furthermore, a significant downturn in supply often results in increased costs for acquisition of the materials needed to continue operating. It can also result in partial or complete shutdown of facilities lacking the resources to operate.

You can take steps to limit the impact of supply chain disruption, such as warehousing inventory and using multiple suppliers when possible. Purchasing specialty insurance policies, including contingent business interruption (CBI) insurance and supply chain insurance can also limit your exposure to loss. These types of insurance reimburse your business for lost profits and related costs caused by disruptions in your supply chain even if your company itself has not suffered any damage.

Keep in mind that it can take two years or more for a company to recover from a supply chain failure. Significant supply chain disruptions can reduce revenue, cut into market share, threaten production and distribution, inflate costs and ultimately affect a company’s bottom line. Whether you run a global corporation or a small business, you need the proper insurance coverage to protect against supply chain failure.

The Limits of Contingent Business Interruption (CBI) Insurance

CBI insurance can provide an important line of defense against losses caused by disruptions at the locations of your suppliers or downstream customers. This type of insurance is limited because it only provides coverage if the businesses you depend on are disrupted by physical property damage—for instance, if a supplier’s factory is damaged by fire and ceases operations. CBI does not protect for all perils; nor does it protect a business when roads are closed and employees cannot get to work or when products cannot be distributed or other suppliers are affected.

Your CBI insurer may require your business to identify specific supplier and customer locations to be covered by the policy. If you change suppliers, fail to update your policy and then a disruption occurs, you will not be covered by the policy.

Broader Supply Chain Insurance

Supply chain insurance provides far broader coverage than CBI insurance for business interruption caused by disruptions to your supply chain. In addition to covering disruptions caused by property damage to your suppliers’ or downstream customers’ businesses, supply chain insurance can covers losses caused by a wide range of events, including:

  • Natural disasters.
  • Industrial accidents.
  • Labor issues (strikes, shortages, etc.).
  • Production process problems.
  • Political upheaval, war, civil strife.
  • Riots or other disruptive civic action.
  • Closure of roads, bridges, or other transportation infrastructure.
  • Public health emergencies; e.g., pandemics requiring quarantine.
  • Regulatory action.
  • Financial issues; e.g., solvency, cash flow problems.

Suppliers in less politically stable nations or in places with more vulnerable infrastructure may be more prone to disruption.

Companies often have multiple tiers of suppliers, yet often only cover the first tier. As a result, more insurers are moving towards offering multi-tier coverage—where the whole supply chain is insured. Check whether your insurer offers this type of coverage.

Mitigating Supply Chain Risk

Insurance is a critical component of managing supply chain risk, but it should not be seen as your first line of defense. Your business can also limit its exposure to supply chain risk by taking the following actions:

  • Assess your supply chain and identify risks and weaknesses.
  • Balance supply chain logistics (e.g., just-in-time delivery) with risk management.
  • Identify back-up suppliers and vendors.
  • Establish contingency plans and include supply chain disruption in your business continuity plan.

By taking these steps, business owners can make informed decisions about mitigation planning, risk transfer and levels of self-insurance. Your supply chain insurer may provide services to help you assess and limit your risks. Your insurance professional can also be a valuable resource in helping your business identify risks and secure adequate insurance coverage.

 

Source: U.S. Department of Transportation, “Protecting Your Business Against Contingent Business Interruption and Supply Chain Disrupton” http://www.iii.org/ website. Accessed February 10, 2016. http://www.iii.org/article/protecting-your-business-against-contingent-business-interruption-and-supply-chain-disruption

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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IN: Protecting Your Business Against Contingent Business Interruption and Supply Chain Disruption

Dear Valued Customer,

In today’s global marketplace, more and more businesses rely on overseas suppliers. In this issue of the “———————-“ we focus on the steps you can take to limit the impact of supply chain disruption.

Read on to understand how to protect your business and how to Cover Losses with Business Interruption Insurance. We’re also featuring a story about product liability insurance which will give you some facts about the types of awards being given to injured parties and the type of legal defense costs needed to fight a protracted lawsuit. It can take two years or more for a company to recover from a supply chain failure, so this is key information.

We appreciate your continued business and look forward to serving you.

Kind regards,

 

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Controlling Losses

Health-Wellness_ConfidentialMedicalRecordIf you would like to reduce the costs and risks associated with workplace injuries and illnesses, you need to address safety and health right along with production.

Setting up an Injury and Illness Prevention Program helps you do this. In developing the program, you identify what has to be done to promote the safety and health of your employees and worksite, and you outline policies and procedures to achieve your safety and health goals.

 

Source: U.S. Department of Transportation, “Controlling Losses” https://www.dir.ca.gov/ website. Accessed February 10, 2016. https://www.dir.ca.gov/dosh/dosh_publications/IIPP.html#3

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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Why Have a Workplace Injury and Illness Prevention Program?

Health-Wellness_Icon_MedicalEmergencyKitWhy Have a Workplace Injury and Illness Prevention Program?

Taking risks is a part of running a business, particularly for small business owners. You take risks in product development, marketing, and advertising in order to stay competitive. Some risks are just not worth the gamble. One of these is risking the safety and health of those who work for you.

Accidents Cost Money

Safety organizations, states, small business owners and major corporations alike now realize that the actual cost of a lost workday injury is substantial. For every dollar you spend on the direct costs of a worker’s injury or illness, you will spend much more to cover the indirect and hidden costs. Consider what one lost workday injury would cost you in terms of:

  • Productive time lost by an injured employee;
  • Productive time lost by employees and supervisors attending the accident victim;
  • Clean up and start up of operations interrupted by the accident;
  • Time to hire or to retrain other individuals to replace the injured worker until his/her return;
  • Time and cost for repair or replacement of any damaged equipment or materials;
  • Cost of continuing all or part of the employee’s wages, in addition to compensation;
  • Reduced morale among your employees, and perhaps lower efficiency; Increased workers’ compensation insurance rates; and
  • Cost of completing paperwork generated by the incident.

 

Source: U.S. Department of Transportation, “Why Have a Workplace Injury and Illness Prevention Program?” https://www.dir.ca.gov/ website. Accessed February 10, 2016. https://www.dir.ca.gov/dosh/dosh_publications/IIPP.html#1

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.