Businesses are failing to obtain enough liability protection to protect their bottom line, but a majority of company owners say the amount of risk they foresee does not justify purchasing the coverage, an insurer's survey has found.
Warren, N.J.-based Chubb Group of Insurance Companies sponsored the 2008 Chubb Private Company Risk Survey of 469 U.S. for-profit company risk managers.
The survey found 37 percent of U.S. companies do not purchase any type of management liability or professional liability insurance. Sixty-three percent do not purchase employment practices liability; 66 percent fail to purchase crime insurance; 63 percent do not purchase directors and officers liability coverage; and 91 percent do not buy cyber liability insurance.
Most said they do not purchase the coverage because they feel they have low or no exposure.
There also appears to be less concern about financial damage caused by lawsuits.
Comparing concerns last year to 2005 survey results, only 23 percent were concerned about the issue regarding lawsuits from wrongful termination, discrimination or sexual harassment as opposed to 43 percent in 2005.
Concern about suits over employee/retiree benefit issues went from 18 percent in 2005 to 11 percent. Directors and officers liability issues dropped from 9 percent in 2005 to 5 percent in this survey.
Yet, 62 percent of U.S. private companies have experienced some type of event related to management/professional liability in the past five years, including workplace crime, 32 percent; employment practices liability, 24 percent; and directors and officers liability 22 percent, Chub reported.
In the 2008 survey, 31 percent of companies expect to experience a crime-related event, 26 percent expect a directors and officers liability incident and 19 percent said they anticipate an employment practices liability incident.
According to Chubb's survey, the average total cost, including judgments, settlements, fines and legal fees, of an employment practices liability-related event is $63,114.
Commenting on the results, Lisa Jones, vice president, Chubb & Son, and private commercial product manager for Chubb Specialty Insurance, said, "Despite a down economy and an increase in risks, private companies may not be purchasing sufficient management liability insurance to help protect their bottom line from a costly liability lawsuit."
She added, "Companies that are uninsured and experience workplace crimes or an employment practices liability lawsuit, for example, may find that a tight credit market makes it difficult to obtain credit to pay for such a loss or to continue their business operations."
"Smaller companies with their more limited resources are particularly vulnerable to the costs associated with an employment practices liability lawsuit," said Ms. Jones. "However, smaller companies may not realize this, as suggested by the fact that they are less likely to purchase insurance protection for this risk."
Only 37 percent of companies with 50 to 249 employees purchase employment practices liability insurance, compared to 51 percent of companies with 250 or more employees.
The Chubb survey, previously released in 2007, 2005 and 2003, was conducted by Pollara, a public opinion and market research firm in Canada in late 2007.
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