Individual Accountability and Cyber Risk Top 2016 Agenda for Financial and Professional Coverage
Individuals were increasingly held accountable in 2015 over corporate mishaps, falling stock prices, data breaches, and regulatory compliance, a trend that is likely to continue in 2016, barring unforeseen changes. At the same time — amid a backdrop of depressed oil prices, stock market losses, and insurance industry consolidation — financial and professional liability (FINPRO) insurance buyers saw generally stable market conditions in 2015.
Individual accountability was a motivating force as, for example, organizations opted to increase purchases of cyber coverage. With the overall frequency and severity of cyber-attacks increasing, senior managers faced pressure, and in some cases lawsuits, regarding their preparedness for and/or their management of the subsequent recovery.
Similarly, in the directors and officers (D&O) insurance market, the “Yates Memo” — named for its author, Deputy Attorney General Sally Q. Yates of the Department of Justice — provided specific guidance about naming and prosecuting individuals in the most egregious cases of wrongdoing.
While the implications of the Yates Memo are currently unknown, civil and criminal investigations could increase — with a focus on individual accountability. As such, clients refocused their attention in 2015 on appropriate levels of Side A difference-in-conditions (DIC) coverage and other unique coverage.
Nonetheless, financial and professional insurance market conditions varied somewhat by coverage line:
- Demand for cyber insurance continues to rise across all industries and segments. Capacity will continue to increase for most classes. Many insureds in 2015 experienced increases in retentions and/or premium rates at renewal, a trend that may continue for some companies in 2016.
- D&O insurance rates generally declined in 2015, as did fiduciary liability rates.
- Rates for fidelity/crime insurance and employment practices liability insurance (EPLI) were typically flat to low, single-digit increases.
2016 Risk Exposure Areas
Key risk exposure areas in 2016 include:
- Cyber liability. All organizations should be prepared to outline their cybersecurity measures for underwriters. Concern over business interruption risks is growing.
- Globalization of D&O risk. The globalization of traditional US-based D&O exposures — including, cyber, mergers and acquisitions (M&A), regulatory, and bankruptcy — continues to expand personal liability for directors and officers.
- Wage and hour claims. Employers anxiously await finalization of the Fair Labor Standards Act (FLSA) overtime rules, which should increase the number of employees entitled to overtime.
It’s important to discuss changing market developments with your risk and insurance advisors. For more information on FINPRO, see Marsh’s United States Insurance Market Report 2016.