Your Insurance Needs for Crisis Management

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Although your business may already hold business insurance to protect you from the result of accidents or worker’s injuries, the potential harm during a crisis can be much more devastating and severe.

As a business owner, you may try to reduce costs by avoiding different forms of insurance that seem extreme such as crisis insurance. By doing this you are putting yourself and your business at great risk. At Coverwallet, we have seen how crises can destroy business which is why we want you to be insured for these crucial situations.

What is Considered a Crisis?

In business, a crisis is an event or string of events that cause massive disruption for a business. A crisis can be severe enough to break a company completely. Most crisis situations have a great impact on sales and the overall reputation of a company. Crisis situations usually need to be diffused by public relations (PR), crisis management consulting, or group counseling.

For example, one of your vehicles is involved in an accident with a school bus filled with students. The crash was bad leaving several students in critical condition needed to be taken to the hospital. After the accident, you come to find out that your employee who caused the accident was intoxicated at the time. News of the event would be covered by the press for a long time, and this would require you to employ a crisis management PR team in order to recover from the situation.

This is a crisis situation because it negatively affects your business, and even has the potential to put you out of business. If a crisis situation is not handled quickly, it can not only call your business’s character into question but can also jeopardize the wellbeing of everyone involved. A crisis management insurance policy will protect your company.

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Crisis Management Insurance for Managers

During a crisis, not only does a business owner need to have the proper insurance in place, but managers might need to carry their own insurance a well. Different types of crisis management insurance can vary based on the type of business and industry.

Directors and Officers (D&O) Insurance

D&O insurance is intended to protect individuals from personal losses as a result of being sued. Even if you don’t own the business, you can be sued as a result of serving as a director, officer or manager of a business or organization. Directors and Officers insurance is a type of liability insurance that is often held by officials who work in large corporations, those who work in the stock market or individuals with a fiduciary duty to stakeholders.

You will want to hold D&O insurance if you are at any risk to be sued by employees, vendors, competitors, investors, customers, or any other parties, due to actual or alleged wrongful acts in managing a company. D&O insurance will cover the legal fees and other costs involved in such a lawsuit.

For example, let’s say you promise angel investors that your startup will be in a certain place in the stock market upon going public which influences their decision to invest. Once you go public, you realize you made your promises very quickly and made a complete overestimation of how well it would do. At this point, the stock is nowhere near what you had promised, and your investors lose a lot of money. You might be at risk to be sued in this situation for misrepresentation of expectations.

Employment Practices Liability Insurance (EPLI)

EPLI insurance covers businesses against claims by employees who believe that their legal rights have been violated. Even though most of these lawsuits are filed against large businesses or corporations, companies of all sizes should carry EPLI.

If you are at a point in your business where you plan to reduce your workforce by more than 15%, you may want to purchase an EPLI plan in order to protect yourself from lawsuits before firing your employees.

EPLI will reimburse your company if you need to hire a lawyer for judgments and settlements. Whether your company wins or loses the lawsuit, you will still be covered. Policies typically do not pay for punitive damages, civil or criminal fines.

Employment Practices Liability Insurance Covers

  • Negligent evaluation
  • Sexual harassment
  • Infliction of emotional distress
  • Discrimination issues
  • Wrongful termination
  • Breach of employment contracts
  • Failure to employ
  • Failure to promote
  • Wrongful discipline
  • Deprivation of a career opportunity
  • Mismanagement of employee benefit plans

Some insurance companies include this form of coverage within their Business Owners Policy (BOP), so it is important to understand the terms of your policy. If EPLI is not included in your BOP, then you can also purchase stand-alone coverage.

Businesses Affected By a Crisis

There are many types of businesses that can be affected by a crisis and should look to hold crisis management insurance.

Fast-moving Consumer Goods (FMCG)

Known as FMCG all over the world and CPG (consumer product goods) in America, these are businesses that sell products that are sold quickly and for a low cost. These might include packaged food, beverages, toiletries, and OTC drugs. FMCG is characterized as being frequently purchased, having little or no effort to choose the item, with low prices, a short shelf life, and rapid consumption.

Since FMCG are generally daily staples in society, during a crisis there might be a huge disruption in the supply chain. Having a form of crisis management insurance can help to protect you in case of panic buying or shortages.

FMCG businesses also face risks of their products endangering customers or making them sick. In this case, a crisis management insurance policy would help to cover the costs of potential lawsuits or a PR team if needed.

Pharmaceuticals

The medical industry is highly regulated, as it should be. After all, you are dealing with people's health. Live’s are at stake. People trust the products that are prescribed and recommended to them from their doctors. If manufactured medicine does not follow the rules and regulations and it harms the health of an individual. Your company will find itself in a major lawsuit. A crisis management policy is HIGHLY recommended if you are in a high-risk industry like the pharmaceutical industry.

Import/export Small Businesses

If you operate an import/export business on a smaller scale, you should have credit risk insurance. These policies will protect you in case a foreign buyer decides they are not going to pay you for political or commercial reasons. These types of policies are actually made available by the U.S government and were created to promote business with high-risk areas.

There are a few options you can choose from:

  • Small Business Policy: This frees you from the first-loss deductible within most commercial policies. In order to qualify for this policy, you must have an export credit sales volume of less than $5 million, within the past three years. You also must qualify as a small business under the SBA’s term of “small business”, and have been in business for at least one year.
  • Short-term/Single-buyer Policy: If you only have plans to work with one high-risk client, then you can use this policy for a single, or repetitive sale with only one person or business.
  • Umbrella Policy: These policies will cover you under the same terms as a small-business policy, but it also will cover you if you act as an export management company or export trading company.

Types of Crisis You Might Face

Every company hopes to avoid a crisis throughout the duration of business, but this is not always the case. Forms of crisis that you might face as either a business owner or even a manager might include:

Financial Crisis

This occurs when your business loses value and eventually cannot pay off its debt. This can be due to a drop in demand for your products or service you provide. If you have insurance, it may be able to bail you out if there are reasonable or unforeseeable circumstances.

Employee Crisis

If you have an employee or individual associated with your company that is involved in illegal or unethical conduct, then you will have to deal with an employee crisis. This can take place either in the workplace, or in an employee’s personal life, but can still reflect on your company. In this situation, you might need to hire a PR team to avoid the public from seeing you in a poor light.

Organizational Crisis

When a company has wronged its consumers (and been caught), an organizational crisis will need to be dealt with. This might include withholding information, exploiting its customers, and even misusing managerial powers. These types of crises are often caused by a negligent employee.

Technological Crisis

Due to many businesses in society being run on technology, if the tech your business operates on crashes, you can potentially lose large amounts of business. This can make your business seem unreliable, and also hugely upset customers.

Natural Crisis

Whether it is an earthquake or other form of natural disaster, your company might be hit hard. Especially if you live in an area that is often affected by natural disasters, you should be prepared with insurance for the worst.

Business Continuity Planning (BCP)

Implementing a business continuity plan in place is essential in case of crisis. Essentially this involves identifying all risks that your business might have, and determining how they will affect your operations. Your Business Continuity Plan should involve three main steps.

  1. Implement procedures to avoid risks
  2. Test procedures to make sure they work
  3. Lastly, review your process continually to confirm, it is up to date.

Not only can you create a BCP on your own, but there should also be one in place regarding your insurance provider. When purchasing crisis insurance your provider should create a BCP with you. You should know exactly what coverage you have, and what steps they will take to help you through a crisis.

Crises can happen to anyone at any time. Although everyone wants to do what they can to prevent a crisis, the only thing you can truly do to protect yourself is to hold the right insurance in place. Without insurance, you will never be sure when you and your business are fully covered.

How You Can Manage Crises

You can take every measure imaginable to prevent a crisis from happening but there are simply some things that you can control. One way or another your business will face a crisis, how you respond will be detrimental to your company’s future success.

Crisis management is no easy task if you are unsure what types of crisis your business may face or the protection you need, contact a Coverwallet advisor today!

Our experienced team has worked with professionals in all industries. We know what challenges your company may face and which protection will benefit your company the most.

Are you ready to get down to business?

Start your application and get a free quote in minutes or call (646) 844-9933 anytime.