In today’s complex legal environment, it is crucial for businesses to prioritize risk management and protect their company from management liability risk. This is the risk that a business or its directors and officers will be held liable for financial losses or legal damages due to errors or omissions in their management of the business.
Businesses should take proactive steps to mitigate the risks. Here are four important considerations that will benefit a company’s risk management, position it as a favorable partner to insurance professionals, and help optimize coverage ahead of renewal time.
Angela Rimgaila of IAT Insurance Group
- Address recent claims head-on. If a business has recently experienced a claim, it now has awareness of areas for improvement in HR policies and procedures. It should then channel that awareness into strengthening procedures and implementing measures that prevent similar incidents in the future.
Any insurance professional worth partnering with will want to know how a company responds to risk. If there is a previous claims history, this is where they’ll begin. Instead of avoiding discussions about recent claims during the renewal process, the focus can be shifted towards the efforts made to address and rectify the situation.
Business leaders must demonstrate an improvement in process or mindset as it relates to the previous incident and how to prevent similar incidents in the future. To prepare for this conversation, consider what could have been done differently to inspire a different outcome.
- Develop operational policies to mitigate risk. Following on learning from claims, it’s important to think about claims that could arise. Even potential claims losses raise concerns for insurance underwriters.
When a business is seeking new coverage or going through a policy renewal, its operational hazards will be evaluated, along with the applicable risk management. For example, a nursing home that aims to provide a safe and caring environment for patients should require strong background checks of every prospective employee. Or, if a company has a lot of customer-facing roles, it should ensure it communicates clear guidelines to employees as to acceptable behavior as well as highlighting specific unacceptable actions, such as discrimination.
- Document more than what seems necessary. Accurate and comprehensive documentation not only supports strong and consistent decision-making, but also ensures a lasting record of the rationale behind decisions. This type of evidence becomes particularly crucial when disciplining or terminating an employee. For instance, a manager who avoids documenting performance issues in an employee's annual review to spare their feelings puts the organization and themselves in a risky position if the employee's poor performance leads to termination. Without documentation, there is no evidence to support the decision to terminate, and allegations of wrongful termination could be successful.
- Prioritize continuing legal education and training. You can’t avoid what you don’t know. Keeping up to date with the ever-changing nuances of the law can help businesses avoid incidents that could lead to lawsuits. This not only requires keeping executives informed, but also regularly training staff.
A comprehensive and evolving training program also demonstrates to insurance underwriters an organization’s dedication to a healthy culture and effective risk management. Many insurance providers offer free services to assist with this type of training and professional development.
As assistant vice president of management liability underwriting at IAT Insurance Group, Angela Rimgaila leads a diverse group of national underwriters and plays a vital role in implementing the underwriting strategy for directors and officers, employment practice liability, fiduciary insurance and crime product lines. She joined IAT in 2021 and in 2022 was named a Rising Star by Insurance Business America.
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