Selecting A Cyber and D&O Insurance Broker
Securing executive liability or cyber insurance may seem like a straight forward process, however the emergence of online service shopping has created considerable confusion and actually become a risk to executives seeking coverage. As organizations delegate insurance inquiries to management and more insurance companies aim for the “quick quote” model, it’s becoming increasingly common for organizations to pursue their coverage needs by saturating the most convenient platforms such as direct quote platforms, online brokerages and insure-tech portals. This type of consumer behavior however is extremely risky and ill advised. It’s critical that organizations understand the importance of utilizing a specialty broker – outside of the insurance itself, an experienced retail broker is one of the organization’s strongest assets, as they provide a myriad of benefits.
- Market Access and Pricing: In addition to having established relationships with the right carriers and wholesalers, specialty retail brokers are also familiar with more obscure Lloyds syndicates, foreign insurers, and proprietary programs which may offer more competitive premiums. When applying for coverage, an experienced retail broker can also help reduce pricing by having the correct dialogue to alleviate the underwriters' risk concerns. Does the company have any immediate plans to improve their cyber security controls? Can the company explain any of its debt? Are there new large contracts on the horizon? There are just a few simple examples of the questions most brokers don't ask...all of which can improve pricing and coverage terms. Lastly, a knowledgeable broker can identify appropriate areas of premium savings. In some instances, this may mean eliminating duplicate EPLI insurance on a commercial package, or cancelling EPLI coverage provided through a PEO. Or it may mean providing a Side A only D&O proposal for 100k as an alternative option to a full D&O package for 150k. In the context of cyber insurance, sometimes simple organizational changes and security measures can drastically reduce certain cyber risks, allowing organizations to reduce certain policy limits.
- Claims Advocacy: Auto insurance is straight forward, the coverage is simple, and it doesn’t require a specialist to understand when a claim is made…executive and cyber liability insurance is anything but. Regulatory inquiries, oral/informal demands, requests for injunctive relief, lawsuits brought by prior executives – all of these demands can create considerable confusion among policyholders and inexperienced brokers, who are often left wondering if a claim has actually been made. If the servicing broker fails to acknowledge and properly report the claim, you may find your (otherwise covered) claim is ultimately denied. But even when claims are properly reported, issues can still arise. Insurance claim handlers may misinterpret coverage, carriers may allege late notice, and some carriers take somewhat of a deny-first approach. Experienced brokers are akin to having pro-bono coverage counsel on your team, able to provide claim guidance and advise if a coverage declination can be disputed.
- Assessing and Negotiating Policy Terms: D&O and cyber policy terms differ considerably from carrier to carrier. Whether it be negotiating broader policy language for regulatory actions, adding coverage for SOX 304/Dodd Frank 954 costs to a public company D&O policy, or amending the language on a social engineering endorsement so that coverage is more responsive, a specialty broker plays the primary role when it comes to improving your policies’ terms. Many of these enhancements carry no additional premium, but the carriers don’t grant them automatically, they must be requested. Two separate brokers can present the same proposals from the same carrier(s), at the same exact premium, however one may have “off the shelf” language whereas the other may contain 10-15 enhancements…all at no additional premium. It’s akin to buying a base model vehicle versus one with upgraded options at the same price. To truly demonstrate the extent to which policies can differ, consider that entire cases have been adjudicated over simple phrases such as “solely” and “arising from”, which have cost companies millions - policy language that specialty brokers regularly focus on. Simply negotiating coverage for “requests for non monetary relief” and/or books and records demands are two more examples of common amendments that can save companies tens to hundreds of thousands in costs related to regulatory investigations or derivative actions. Understanding the policy’s complexities can even be beyond the scope of in-house counsel, which is why a seasoned broker is critical when it comes to interpreting and negotiating the scope of coverage.
- Risk Awareness and Setting Limits: Cyber policies alone have evolved to the extent that there are now dozens of core enhancement endorsements, with each carrier applying a different version. When it comes to directors and officers insurance, most brokers believe there is only one type of policy, however there are more than 5 types of core policies, not including the employment liability, crime and fiduciary insurance components, which each have their own separate terms. Structuring coverage properly isn’t as simple as securing a quick quote online. In addition to the difficulties in understanding the actual policy terms, most companies aren’t entirely sure what they need, or how much they need. How much D&O insurance should a private company launching a 40 Mill series B purchase? What’s the average crime loss in a given industry? What are your corporate peers purchasing? An experienced broker will not only understand your company’s unique risk profile, but will also be able to prioritize those coverage needs and present different options given the organization’s allocated insurance budget.
- Advising During Transactions: Advising goes well beyond simply analyzing quotes and consulting on claims. Transactions such as; mergers and acquisitions, business closures, and/or new equity rounds are just a few examples of some corporate actions that require careful insurance coordination mid policy term. These are often missed by brokers unfamiliar with professional liability. Consider a company, in the midst of an equity round, that secures a renewal containing a creditor exclusion which is also excluding coverage for convertible note holders. The carrier may agree to remove that exclusion mid term upon receipt of proof of funding, which would effectively grant back coverage for any claims brought by those convertible note holders – a critical policy improvement that can easily be missed. A company that decides to collect biometric data, such as data for finger print identification or facial recognition is now exposing themselves to newer, stricter privacy regulations under BIPA and CCPA, requiring more robust cyber coverage. Coordinating D&O coverage during a merger creates a different set of challenges, particularly when it’s being addressed at the last minute and the target company is a foreign company that doesn’t currently maintain any D&O insurance. Imagine being that policyholder, approaching the merger and the servicing broker is unaware of how to coordinate coverage by the deadline. It can leave a company entirely without options (and without proper coverage). These are just a few examples of some challenges that regularly arise – and challenges that no company wants to encounter in the middle of a policy term.
Instead of saturating multiple brokers with numerous quote requests or simply securing quick online quotes, here are some due diligence tips on how to find the right partner. One experienced broker will save time and yield significantly better results (in both pricing and coverage), than engaging 5-10 general agents.
- Inquire about the broker’s opinion on structuring coverage for your organization. Ask which carriers will be approached.
- Perform some research. Does the individual assigned to your account maintain any industry recognized designation such as the RPLU (registered professional liability underwriter)? Have they been published in any known publications? Does their website have blog posts and whitepapers that are informative on pertinent topics?
- Ask for references when appropriate. Most brokers (us included) are understandably hesitant to provide references, as we prefer not to inconvenience our clients, however on larger accounts most brokers are happy and willing to provide references upon request.
- Lastly, inquire with your counsel. Not all attorneys have relationships with specialty brokers, however almost all specialized attorneys (such as securities, regulatory and/or transactional attorneys) will be able to point you in the right direction.