The in-house general counsel, more often than not at young fast-growing companies, are unaware of the company’s insurance policy requirements (e.g.: timely notice, consent to counsel and rates), let alone what is even covered under the insurance policies, until the company and/or its directors & officers are in the throes of litigation, or being investigated by regulators, or both.
I recommend the GC be involved in the up-front placement process alongside the finance team. It's within a finance person's nature to be primarily focused on the numbers (e.g.: premium) versus the equally, if not more important factors of policy wordings and claims expertise/reputation of the insurance carrier. This is where the rubber really hits the proverbial road. A GC's input and perspective can have a multi-million dollar impact when/if that day or claim comes. When the company has a claim, it's going to be the GC that's going to have the arduous task of working with the broker and insurers to get loss paid, especially if there is a disagreement on coverage (that day will come for each of you if it hasn't already). Don’t start with one arm already tied behind your back due to lack of involvement in the up-front decision making around insurer selection at the time of placing/renewing the policies…it’s worth your time once a year to be involved. A few hours of time spent by the GC in the placement process annually can have an immeasurable result.
What are the most important things the GC should be thinking about when it comes to insurance?
- Unlike your auto insurance, the management/professional liability and cyber/crime insurance vertical (a tech and fintech company’s largest premium spend and likely largest risk exposures) is a very small and relationship-driven space. Do you know who your underwriter is and do they understand your business? Have you met the claims manager that will be assessing whether there is coverage or not for the claim? Who are you paying thousands or even millions in premium dollars to each year? These are the people you should know in advance of an “event” because these are the people you are going to be depending on to help you in a time of crisis, make your life easier; not harder, and reimburse your company for millions in defense, settlements, and adverse judgments. Lastly, do you understand the relationship dynamic between underwriting and claims, and the implications that one may have on the other, or are they separate/distinct profit and loss centers? That distinction can be the difference between getting claim denied or paid.
- Meet your underwriters (virtually these days) every year so that they understand your ever-evolving risk. A live presentation that gives underwriter’s ability to ask questions will always yield better results. You should always control the narrative with your underwriters so that they don’t form their own, potentially uninformed, assumptions and “fill in the blanks” themselves…unless those blanks are filled in proactively, the underwriter will always assume the worst case…that’s their job. You are building your relationships with underwriters that will hopefully be your advocates in getting a future claim paid. The point of the meeting with underwriters is to build a partnership. You want underwriters walking away wanting to fight for you.
- No policy is created equal when it comes to policy language and ultimately coverage. Does the insurance carrier control defense or does the company? If the company has the duty to defend, can the company only choose from a panel of pre-approved lawyers stipulated by the insurance carrier or can they go outside the panel? What's the insurance carrier's approach to law firm rates charged?...does the insurance carrier hire the cheapest attorney possible or are they helpful/thoughtful in working with you to find the best defense for the case to all parties' benefit? What is this insurance carrier's overall claims reputation? All scenarios are workable, and there are pros/cons to each, but it’s a conversation that should be had upfront with the carrier and your broker to make sure it’s the right fit for both parties.
- Who is your broker? And I don't mean what company, but who individually is ACTUALLY doing the work?...who are you entrusting to negotiate the policy language where the difference between "and" and "or" can be the difference between a claim denied and millions in recovery for your company? At the first "full stack" Tech GC Conference I ever went to in San Francisco, I remember a breakout roundtable discussion led by a GC, that will remain nameless, who said "insurance brokers suck" as a blanket statement. Wrong. As an insurance broker myself and former underwriter that worked/negotiated with most of the brokers in the US, please believe me when I say there are some amazing brokers (individuals) out there. Finding the right broker comes down to these 5 factors:
a.) Process & Strategy - Does your broker have a strategy and process for how they want to approach the market and why? Each year, is the broker critiquing. their own work (e.g.: policy language & coverage) to continually make improvements every year? Are they factoring in how your company is evolving in size, products, geography, and ultimately the company's risk profile and appetite.
b.) Creativity - Make no mistake, insurance policies are highly negotiable and can/should be customized specific to every unique company.
c.) Experience - Especially in the difficult insurance market we sit in now, brokers with experience through different market cycles is a necessity. Brokers who have been previously underwriters are extremely well positioned because they have the underwriter’s perspective and therefore know what levers to pull, and most importantly are looked at by underwriters as peers first, brokers second. Those relationships developed on the carrier side are invaluable when you come to the negotiating table, which leads to my next point below:
d.) Relationships - Strong senior level relationships with the decision-makers at insurance companies is critical. A broker's strength of relationship with underwriters, and subsequently the individual broker's reputation, is going to weigh highly on the terms and pricing you are able to secure. Underwriters are willing to stick their necks out and get creative, but only for brokers they have strong relationships and good reputational standing and trust. This is the unquantifiable part of making sure you choose the right broker.
e.) References - The most important thing you can do when considering one broker from the next is ask for and call their references! Once again, while the broker's firm is important, the individual that is actually negotiating the deal on your behalf is more important. This is the person(s) that is going to represent you to the market…birds of a feather fly together.
GCs need to be involved in the insurance placement process each year; not just when litigation occurs or investigations ensue. Pick your partners carefully.
“Knowing your carrier’s claim ‘philosophy’ is critical, particularly with more complex and high profile risks like D&O,” says Todd Greeley, Financial Lines Chief Operating Officer for QBE North America. “With more complex risk transfers, I can’t overstate the value of partnering with a carrier that offers technical expertise and engaged claim professionals who will approach your claims with the mindset of helping you get the best outcome – rather than on how it can avoid paying a claim. And you don’t want to learn that your carrier’s approach to claims doesn’t match your expectations in the middle of a high-stakes claim. Talk to your broker about the carrier’s claim reputation, and ask to meet the key claim decision-makers in the underwriting process today. This will help build a strong relationship where you can be assured you’ll be heard and receive the communications and outcomes you deserve when something goes wrong,” adds Greeley.
“The GCs who tend to get the best results during the claims process are those who have been transparent and up-front during placement regarding their risks and preferred claim resolution strategies,” says Dereick Wood, SVP, National Claims Services & Client Engagement - ABD Insurance & Financial Services. “Are you willing to litigate a defensible claim to the mats? Or do you prefer to focus on the most efficient way to expedite a settlement and avoid legal cost and reputational exposure? When GCs are clear and consistent regarding claim philosophy with their insurance partners during placement, that synergy leads to a more focused and cohesive approach when the claim lands.”
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