January 2024 Market Update – Management Liability
Changes to the regulatory landscape, particularly the recent announcement of a ban on all engineered stone and new sexual discrimination laws will put pressure on Management Liability premiums. Extrinsic factors such as interest rate pressures and return to work policies are also affecting businesses in different ways.
Carrying appropriate and up to date policies is no longer enough to satisfy insurers who want to see active implementation and review of policies and systems on a regular basis, especially to adapt to the changing regulatory and legislative amendments.
Cover for insolvency risks remains difficult to procure and insolvency will remain a significant concern for businesses due to the current economic climate resulting from inflationary pressures and the business sector adapting to a higher interest rate environment. This, together with energy costs and ongoing trade and supply chain issues, remains present.
Insurers are increasingly stringent as to whom they wish to provide with solvency cover, taking a particularly cautious approach to the construction and manufacturing industries as they have high exposure to inflationary pressures. See our recent article here as regards the latest (and alarming) insolvency trends. Insurers are requesting that organisations provide financial statements (externally audited) to procure this cover and, if healthy financial statements are provided, this works in their favour, and insolvency cover can generally be obtained.
Businesses may look to reduce overheads by cutting staff – this will inevitably result in an uplift in employment practices disputes. New sex discrimination legislation will also result in fresh claims.
We expect to see premium uplifts of 10-15 per cent depending on industry, with firms laying off staff finding themselves at the higher end of the scale.
Environmental, Social and Governance (ESG) risks
ESG risks are an emerging area of concern and are at the forefront of underwriters’ minds due to the increasing number of greenwashing cases that have been seen in the past 12 months, which are expected to continue to rise. Companies and their boards are now expected to demonstrate a clear strategy in the ESG space and show that they have a mature ESG framework in place. Those with a clear ESG framework are favoured by insurers and where this is not shown, companies need to demonstrate they have proactive risk identification and management strategies in place to provide comfort to the underwriters writing the risk.
Following the numerous high profile data breaches in Australia over the past year, there is an increasing awareness in the insurance market of cyber risk exposures as ransomware and supply chain attacks have been dominant. It is expected that the number of cyber attacks will continue to increase due to the digitised world we live in, and they will be accelerated by technology such as artificial intelligence. Whilst new emerging technologies offer a range of opportunities for businesses, they consequently mean that there will be new vulnerabilities and risks that businesses will face. As a result, insurers now require that companies, and particularly their boards, can show that they have strong cyber risk management processes in place by having strong networks, increased resilience, investment in cyber security and that they can integrate cyber insurance solutions to limit the impact of cyber attacks.
Statutory Liability (SL) and Employment Practices Liability (EPL) claims
Statutory Liability premiums have continued to increase due to the impact of occupational hazards and worksite incidents, and enquiries from regulators, especially within the building and construction industry. With the recent announcement of a ban on the sale of all engineered stone building products, regulators will be paying close attention to compliance with safe work practices regarding stone cutting.
Social and economic factors have also affected recent EPL claims. Social justice issues such as discrimination based on race, age, gender, and sexual orientation remain top of mind for employers and continue to affect businesses. Common types of EPL cases are in relation to wrongful termination, sexual harassment, and defamation of character.
With the current changing economic landscape and consequent instability there is the possibility of an economic downturn and following that, company downsizing and layoffs. This could result in a rise in EPL claims. As such, underwriters are seeking evidence of the economic and financial stability of companies.
Companies are also currently having to navigate the workplace post COVID. Many companies who promised employees fully remote working may have challenges in getting employees to return to the office or implementing hybrid working procedures.
Additionally, it is increasingly seen that employees are demanding pay transparency meaning there is the potential of increased EPL claims when employees compare salaries.
Due to the increasingly digitised world we now live in, social engineering fraud loss frequency sits closely beside claims filed in relation to employee theft. It is expected that social engineering fraud, vendor fraud and employee theft claims will continue to rise. This being influenced by potential economic downturn and the likely resulting increase in crime losses within businesses exacerbated by layoffs and salary cuts.
Key factors that underwriters look at include employee count, asset growth, loss history, and the ability to demonstrate that there are robust internal controls and procedures in place.
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