Management Liability (ML) insurance* may be an important consideration for many of your clients. While an ML policy can provide much needed peace of mind, your SME clients probably hope they never need to make a claim. In fact, creating and following risk management procedures could help them avoid claims and potentially save money when they renew.
Management Liability products cover a range of exposures relating to the management of a company. Here we take a closer look at three of the biggest claim categories made under ML policies.
Applications to the Fair Work Commission increased 8% during the 2019-20 financial year, with their highest volume case type, unfair dismissal, increasing more than 40%.1 These claims, as well as others related to employment practices (including discrimination, bullying and harassment), can be costly for SMEs, as illustrated by this claims example from insurer partner AIG:
A senior employee lodged complaints of bullying and aggressive conduct by the managing director and was later dismissed. Complaints of racial discrimination and disability discrimination were also made. A case was initiated in the Federal Court and the matter was settled for a 6-figure sum.
Given the potential expense of an employment practices claim and how often they are made against SMEs, your clients may want to evaluate their risk management processes in this area:
- Employees and management should be aware of company policies regarding unacceptable behaviours. The consequences of violating these policies should be clearly laid out in the employee handbook.
- Regular training on how to prevent discrimination in the workplace (including when hiring new employees) should be put in place for relevant staff.
- Provide employees with the steps they should take if they see or experience a violation of anti-discrimination laws or human rights statutes.
- If a complaint is made to management, document everything the business is doing to help resolve the problem.
Health and safety risks are another area where your SME clients may want to review their risk management procedures. While serious claims reported to Safe Work Australia have been decreasing for the past two decades,2 they are still costly for businesses when they do happen. Consider this claim example from the construction industry provided by DUAL:
A series of safety lapses occurred after the insured failed to check if correct processes and procedure were in place. As a result, an employee of the insured injured his arm. The Statutory Liability section of the Policy was triggered. The insured received a $200,000 fine under the OH&S Act and amassed close to $400,000 in legal costs in defending the claim.
Steps your clients could take to help avoid OH&S claims under their ML policy may include:
- Having company-wide safety policies in place to help prevent workplace accidents.
- Engaging staff in regular, mandatory safety training.
- Ensure the proper licences are in place to conduct business.
- Consistently enforcing OH&S policies to avoid lapses or cut corners.
- Regularly reviewing safety policies to check that they are still adequate and to make sure employees are following them.
Employee theft is a huge issue for SMEs in many industries. In Australia, current and former staff are responsible for an estimated 70% of business fraud and 55% of stock shrinkage.3 Employee theft can take many forms, as shown in these claim examples from our insurer partners:
A quality control manager and stock manager colluded to defraud their company. The quality control manager labelled undamaged goods as marked for disposal, and the stock manager arranged for the “faulty” goods to be removed from the premises. The goods were then sold in pubs and on internet auction sites. (AIG)
An employee voided sales invoices and embezzled funds totalling $400,000 from the Insured company over the course of a year. The Insured was reimbursed for the lost funds under their Management Liability policy. (DUAL)
Your SME clients may choose to follow these and other steps to help prevent employee theft:
• Require compulsory pre-employment background checks for all staff.
• Employees should be aware of the business’ anti-theft policy. The consequences of stealing from the company should be clearly outlined in the company handbook.
• Carry out internal and external audits of financial records to help detect fraud.
• Create an inventory control system and complete random inventory checks.
• Put security measures in place to stop employee theft, such as surveillance cameras or hiring a security guard.
Management Liability for your SME clients
Putting risk management steps in place could help your SME clients avoid many types of Management Liability claims and help them save money on their policy renewal.
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*The information in this article is general only and should not be relied upon as advice. BizCover for Brokers is a registered business name of BizCover Pty Ltd (ABN 68 127 707 975; AFSL 501769).