Privacy Insurance Is a Growing Market – Are Your Clients Protected?

Grey Swan,

The US has experienced a number of high-profile “cyberthreat” or privacy breach cases, including lawsuits brought against Sony and LinkedIn. Testifying before Congress, FBI Director Robert Mueller said cyberthreats will soon surpass terrorism as the country’s biggest threat. It is already a costly one: the average cost of a data breach in 2010 was $7.2 million. There is the perception that such cases simply do not happen in Canada. Most companies do not view privacy breaches or cyberthreats as a major risk because litigation has been muted thus far. These companies do not have comprehensive coverage against such risks, leaving them very much exposed.

The truth is privacy breaches are becoming commonplace in Canada; recently, Calgary-based Telvant was a target of a cyber-attack. The IT company has a hand in managing 60 percent of all gas and oil pipelines in North America and Latin America. Such attacks, says Travis Davies of the Canadian Association of Petroleum Producers, are “the new normal.” The big exposures are for small and medium enterprises, which do not have the resources or processes in place to handle a policy breach. These breaches could be covered by other, general insurance policies, but typically, they are not.

4 Myths of Working with a Strategic Advisor

Grey Swan,

The decision to bring in strategic advisors is not one that businesses arrive at lightly. Whether they are hesitant to spend the money or wary of having an “outsider” come in, many delay getting the help they need until the challenges they face loom large or opportunities have slipped away. Instead of responding to a crisis, businesses can use strategic advisors to prevent a crisis and to ensure they are able to look towards the future with greater confidence and security.

There are certain myths about working with strategic advisors that persist:

Myth #1: That’s My Job.

In some cases, executives may see advisors as competition. It can become quite personal to a manager who perceives that their boss expects them to perform the services that are being outsourced. They may also see it as failure or ineptitude on their part that the company needs to turn to external help.

The truth is that when executives have reached their capacity in handling transactional business, they need help. It is difficult to plan for tomorrow when today is consumed with putting out fires. Further, strategic advisors are not brought in for broad, general areas of focus. Rather, we are brought in to apply niche expertise to a business’s strategic challenges. This not only provides the specialized knowledge necessary to augment an executive’s skill set, but also creates needed change, and allows improvements to happen faster.

Privacy Insurance: A Hot Topic

Grey Swan,

Privacy is the new black. Actually, people have been saying that for at least five years, so maybe privacy is the old black. But black never goes out of style, and privacy issues are never out of season either. The Privacy Rights Clearinghouse reports that, in 2011, there were 535 breaches affecting 30.4 million sensitive records. This is in the US alone, and these are very, very conservative figures. Privacy is a hot button issue, but many companies are not insuring themselves – or insuring themselves effectively – against the threat.

Canada does not see the volume and magnitude of privacy cases as our neighbor to the south, but that other shoe is dangling. According to the PRC, “Unfortunately, it is virtually impossible for individuals to protect themselves from a data breach. It is up to organizations that collect data on consumers to take the steps to ensure the privacy and security of the data they collect and maintain.”

Claims Made vs. Occurrence Policies

Grey Swan,

Any practicing professional, whether a lawyer, broker, accountant, or architect, can, and should, opt to carry E&O (Errors and Omissions) coverage. These professional liability policies are a must in litigation-prone, high-risk fields. So, let’s say you are a broker. In 2005, you carried a $1 million policy. It’s 2012 and you’ve bumped that up to $2 million. A client you worked for in 2005 files a claim against you now and is awarded $1.5 million in damages. Are you covered for the full amount or not? That depends on whether you have a claims made policy or an occurrence policy. What’s the difference, and what does this have to do with your D&O insurance?

If you had an occurrence policy, you would be, as they say, SOL. This would cover errors which took place when the policy was in place. Your insurance in 2005, when you worked with the client, was only for $1 million. You would be uncovered, then, for the difference of $500,000.

Who Needs D&O Insurance?

Grey Swan,

Towers Watson’s Larry Racioppo, says that it is clear that directors and officers are “concerned about the exposures they face… Whether it is traditional securities class action litigation, M&A-related activity, derivative actions, or threats from a wide range of regulatory or law enforcement agencies, directors and officers – and the companies they represent – are seemingly under siege from a wide array of potential claimants.” In a litigious environment, D&O insurance is increasingly necessary. But who exactly needs it?

If you have officers and directors, you do! That’s the short answer, but it’s also the best one. D&O is appropriate for:

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