7 Insurance Giants Say Social Responsibility Is on Par With Shareholder Value

Joining dozens of CEOs of America’s biggest businesses, these insurance industry leaders acknowledged they are beholden to their communities more than their shareholders.

By: Katie Dwyer | August 21, 2019

On Monday, August 19, a group of high-powered American executives published a statement on the role of shareholders in corporate governance that departs sharply from tradition.

The “Statement on the Purpose of a Corporation” put forth by the Business Roundtable asserts that corporations have greater obligations beyond generating profits for shareholders. In short, they are responsible for creating better lives for all their stakeholders.

Here’s a snapshot of what the document says and what implications it has for the insurance industry:

What It Says

The statement opens with reaffirmation of the belief that all Americans should be able to achieve stability and success through hard work. All are entitled to “lead a life of meaning and dignity,” and a capitalist, free-market system, they believe, remains best suited to create the opportunities and rewards that enable such a life.

To that end, the authors recognize corporations have responsibility not just to shareholders but to all stakeholders — including employees, customers and suppliers.

Putting these parties first and treating them ethically is ultimately what keeps businesses going and the economy growing.

In the statement, signers commit to: Deliver value to customers; invest in employees through fair compensation, benefits, continued education and training; foster diversity and inclusion; treat suppliers fairly; support local communities by adopting sustainable practices; and — taking a conspicuous last spot on the list — create long-term value for shareholders.

Since 1997, the Business Roundtable has issued Principles of Corporate Governance, stating that “corporations exist principally to serve their shareholders.”

Monday’s statement is a clear and decisive break from that credo.

Why Now

Shareholders have long been corporations’ top priority because disappointing them means withdrawal of their investment at best, and at worst, the potential for securities class action lawsuits.

Historically, shareholders’ primary concern was profit. Decisions were made with the bottom line top of mind.

Greg Case, CEO, Aon

Business Roundtable’s statement reflects a fundamental shift in what society expects of big businesses. All stakeholders, including shareholders, now hold corporations to a higher standard of social responsibility.

They want companies to put people above profits. To use their economic power for good by supporting policies that protect the environment. And to address issues like the gender wage gap, diversity and discrimination head-on in their own employment practices.

Companies that don’t fulfill these expectations have already felt the wrath of hashtag-driven boycotts and other forms of social media shaming.

Businesses now operate in an environment of heightened reputation risk that has a tangible impact on income statements. Loss of customer loyalty and diminished brand value are real consequences of social irresponsibility, and these ultimately impact revenue and profit.

The Business Roundtable’s mission statement to be better corporate citizens is a product of this pressurized risk landscape as much as a true desire to make the world a better place.

Who Signed It

The Business Roundtable comprises CEOs of U.S. companies with more than 15 million employees and more than $7 trillion in annual revenue. Some prominent members include C.V. Starr’s Hank Greenberg, Amazon’s Jeff Bezos, Apple’s Tim Cook, and JP Morgan Chase’s Jamie Dimon.

In total, seven commercial insurance organizations signed the statement:

Aon
Chubb
C.V. Starr & Co
Assurant
Progressive Corporation
Travelers
Verisk Analytics

What It Means for the U.S. Insurance Industry

The statement outlined no clear directives for how companies should pursue social responsibility, but may be the catalyst needed to spark conversations within individual corporations.

When it comes to sustainability and environmental issues, insurers are already acutely aware of the cost of climate change.

Evan Greenberg, President and CEO, Chubb

Many have directed more investment dollars to the renewable energy sector while scaling back in coal and fossil fuel companies.

Munich Re, Swiss Re, Zurich, AXA XL and Allianz have all committed to stop underwriting coal operations and increase “green” investments, most targeting at least €10 billion ($11.1 billion) by next year.

Most efforts to change the course on climate change have been concentrated in Europe, driven in part by stricter environmental regulations. Business Roundtable’s support of greater social responsibility will possibly drive more action in the U.S.

Separately, Chubb issued a coal underwriting policy in July that signaled a cut back in its support of that fossil fuel.

Domestic insurers are also making a difference in other areas.

Many have organized community outreach efforts, which include sponsoring local recreational, health and educational programs.

QBE, for example, launched an impact investment initiative several years ago, called Premiums4Good, that directs a portion of premiums toward projects with a clear and measurable social or environmental benefit. The company aims to invest $1 billion in social impact projects by 2021.

The Insurance Industry Charitable Foundation also reports it has contributed more than $36 million in community grants and has completed more than 300,000 hours of volunteer service for non-profits over its 25 years.

Nearly every major insurance company also has a team dedicated to driving greater diversity and inclusion.

More than two dozen executives of commercial insurance organizations have signed the CEO Action for Diversity & Inclusion pledge, which outlines a specific actions “to cultivate a workplace where diverse perspectives and experiences are welcomed and respected.”

These are just a few examples of corporate responsibility at work, and it will be interesting to see if Business Roundtable’s statement spurs even more. &

Katie Dwyer is a freelance editor and writer based out of Philadelphia. She 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.