You Think Political Instability Is Crazy Now? Half of Business Leaders Surveyed Said It’ll Only Get Worse

With global risk perceived as increasing, business leaders remain confident in their own company's success.

By: Autumn Demberger | February 23, 2019

Topics: Future of Insurance | Risk Management

Risk is global; confidence is local.

That’s what the CNA Hardy Global Risk and Confidence Report concluded after surveying 1,500 business leaders from multinational firms across the globe.

In total, 82 percent of business leaders believed they operate in a moderate to high risk environment. Twenty-two percent cited economic risk as their top concern, with cyber risk following close behind at 19 percent.

These numbers, the report concluded, stem from several factors, with global tension and political risk leading the forefront. Forty-eight percent of respondents cited Brexit as a driver of their concerns, while 34 percent added the global trade war tensions add to their precaution.

Predicting Growth, Wary of Risk

CNA found that in North America, 64 percent were confident in their business’ ability to grow.

Across the pond, the proportion falls to 60 percent for Mainland Europe. The UK, facing a looming Brexit, was more uncertain, with only 39 percent of leaders confident in their business’ potential for growth.

As for Asia, where respondents are wary of trade war fall out, only 53 percent of leaders said they were confident in their business’ growth potential.

In addition to economic and cyber risks, respondents cited technology risk (14 percent) and political risk (13 percent) as their numbers three and four top risk concerns. In fact, almost half of the respondents (42 percent) think political risk is likely to increase within the next six months.

Technology: From a ‘Near Risk’ to Global Top Three

Technology was a critical area of spend among respondents, noted the report. Seventy-four percent of leaders said they are prioritizing technology, while only 14 percent answered they are cutting back on tech spend.

“Often expansion is facilitated by technology,” read the report, “which offers access to new markets literally at the touch of a button. On the plus side, technology does everything businesses could ask for: enabling more efficient operating, improving customer engagement – even delivering step changes in performance.”

“Insurance has a key role to play in helping companies to get that risk management right, both in prevention and incident response.” — David Legassick, head of technology and cyber, CNA Hardy

But on the other end, “it’s a myth that technology inevitably makes companies more nimble and flexible.”

That is also why technology moved from being a ‘near risk’ in a CNA Hardy May 2018 study to one of the top three concerns of business leaders today. Additionally, 37 percent believe technology risk will increase in the next six months.

“Anxiety about the role of technology is also reflected within the sector’s leadership,” the report said. Fifty-nine percent of respondents are confident about the future, but 17 percent remain cautious about the weight of expectation placed on tech advancement and the risks that they could face.

Breaking Down Cyber

In the May 2018 CNA survey, cyber was considered the #1 top risk. This time around, it took second as the most concerning risk for business leaders.

CNA Hardy discovered that while small- and mid-size businesses tend to be the most vulnerable to cyber threat, large corporations are most concerned about this risk, with nearly 50 percent of leaders predicting cyber risk will increase in the next six months.

“There is a chronic shortage of cyber security skills and this will continue as new technology like the Internet of Things (IoT) amplifies creating more insecurities,” wrote David Legassick, head of technology and cyber, CNA Hardy, for the report.

“This means the gap between risk and mitigation, exposure and cover will continue to grow. Insurance has a key role to play in helping companies to get that risk management right, both in prevention and incident response,” Legassick said.

Additional Insights

The main goal of the CNA Hardy report was to review and come to an understanding of how the mood in the market is changing internationally and where insurers should focus their discussions with clients.

The 1,500 business leaders surveyed ranged from businesses with turnover of $6.5 million to up to more than $1.3 billion, and they came from sectors ranging from manufacturing and construction to tech and life sciences.

The study goes one step further and analyzes each region in detail, from North America to Asia Pacific, Mainland Europe and the UK. Read the full report here. &

Autumn Demberger is a freelance writer and can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.