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Many private companies have not implemented risk management practices that could help protect them from exposure to civil litigation and government fines, a survey by Chubb Group of Insurance Cos. has found.
Moreover, most private companies share a misconception that the vast majority of the risks their firms face is covered under commercial general liability insurance policies, the survey found.
“Many private companies have not taken the loss prevention measure and have not purchased the appropriate insurance to help insulate themselves from litigation, government fines and their related financial and reputational consequences,” said Tracey Vispoli, senior vice president and specialty insurance global customer segments leader at Warren, N.J.-based Chubb, in a statement. “This is surprising in light of the fact that a large number of these firms have been sued in recent years by employees, customers, government agencies and other parties, and many are planning to participate in activities such as mergers that can increase their risk profile.”
Nearly one-half of the 450 private company executives responding to the Chubb 2013 Private Company Risk Survey said they experienced at least one loss event in the past three years related to directors and officers liability, employment practices liability, fiduciary liability, crime, workplace violence, or cyber liability. Additionally, 40% of the survey participants said they were likely in the next 12 months to merge with or acquire another firm, reduce the size of their workforce, and/or cut back on employee benefits.
Among other survey findings:
• Seventy-three percent of responding companies said they use outside service providers to administer their employee benefit plans, yet only 46% take measures to reduce their fiduciary liability exposure such as reviewing administrative fees charged to their retirement plans and assessing whether the plan operates in the beneficiaries' best interests.
• Twenty-one percent of companies surveyed use cloud providers to store and retrieve data, yet only 54% of those have an incident response plan for cyber breaches, including the theft of confidential customer information.
• Forty-two percent of responding companies have a broad exclusionary policy against hiring employees with criminal backgrounds, a violation of some states' laws.
• Sixty-eight percent of companies surveyed use social media, but only 12% have a written social media usage policy for their employees.
The survey also found that only 28% of private companies surveyed purchase D&O insurance, while 65% said they think this risk is insured under their general liability policies; 30% purchase employment practices liability, with 60% saying they think this exposure is covered by their GL policies; 26% purchase fiduciary liability, while 51% say they think this risk is covered by their GL policies; and just 5% purchase cyber liability insurance, with 39% saying they think this exposure is covered by their GL insurance.
The Chubb 2013 Private Company Risk Survey was conducted by Pollara Strategic Insights, a Toronto, Canada-based independent public opinion and market research firm. Participants included executives at 450 for-profit U.S.-based private companies, more than 90% of which had annual revenues of less than $25 million.