Business risks are nothing new, but today’s risks and risk mitigation challenges have evolved. The current risk landscape isn’t your grandpa’s or your dad’s.
Steve CareyProperty insurance rates continue to create a historically long-running hard market. Add in natural disasters, cyber breaches, and overall market uncertainty, and you’ll find Finishing and Coating CEOs, CFOs, risk managers, and business owners scrambling to avoid emerging risks that could negatively impact their businesses.
As executives, brokers, and carriers continue to navigate an ever-changing terrain, there are four key emerging risks and management approaches that can’t be overlooked:
1. Artificial Intelligence: It’s no surprise that AI is one of the fastest-growing risks. In the next 10 years, it is expected to rank sixth among business threats. That’s why organizations must implement an artificial intelligence (AI) policy. Insurance coverage can respond to damages such as AI-facilitated hacking or intellectual property infringement. Even if your business already has a Cyber policy, AI risks don’t often fit neatly into the policy language, creating a coverage gap. For example, insurance carriers could dispute coverage under some Cyber policy wordings if brand damage results from an AI-based antivirus tool that threat actors have tricked into thinking a specific type of ransomware is benign. While technology-driven claims aren’t new, the sources generating them are ever-changing. The frequency, severity, and impact AI has on the insurance industry remains to be seen, so carriers are in their infancy regarding understanding and rating this risk.
Because Active Assailant threats are an emerging risk, carriers have very different terms to explore when selecting the proper form/carrier.
2. Active Assailant: There have been 15 mass killings so far in 2024, which is down from a 2019 high but trending above most years. While attacks at schools and houses of worship tend to dominate the headlines, they have accounted for only 13 of the 589 events since 2006. In tragic cases like this, insurance can never make those harmed whole again. Forward-thinking organizations are hiring risk management firms/brokerages to help create an incident response plan. In the unfortunate event that an active shooter event takes place, an Active Assailant policy can protect against loss of business income and provide counseling for employees. Because Active Assailant threats are an emerging risk, carriers have very different terms to explore when selecting the proper form/carrier.
3. Polyfluorinated Substances: Better known as PFAS or forever chemicals, polyfluorinated substances are increasingly found in the air, water, and soil. Alarmingly, most people have PFAS in their blood. These chemicals have been used since the 1940s but have recently been classified as dangerous and are excluded from most new insurance policies. Thoughtful organizations need to review their contracts to hold harmless and indemnify language. They should also consider captive insurance since PFAS-related liabilities are difficult to insure in the traditional market. Work with your broker to request extensions and look for alternatives moving forward.
Should a claim arise, having Directors and Officers coverage is the best response to risks brought on by ESG initiatives, even for privately held companies.
4. ESG (Environmental, Social & Governance): In recent years, ESG has been a trending topic for executives with publicly traded companies and is now under increased scrutiny from privately held companies as well. Claims are often made against company directors and are related to false or misleading ESG disclosures. As DE&I initiatives continue to grow, claims are rising from hiring practices that some may see as unfair. Additionally, activist shareholders have increasingly filed claims against organizations they believe are contributing to climate change. Implementing a comprehensive risk management program is the most effective way to avoid ESG claims. Should a claim arise, having Directors and Officers coverage is the best response to risks brought on by ESG initiatives, even for privately held companies.
While every insurance policy and risk has nuances, these newest perils are among the most misunderstood. Some business leaders mistakenly think their organization isn’t at risk or may falsely assume that current coverages will protect them.
Complacency is a risk approach that will not work as the world continues to change faster. Risk mitigation starts with education, grows when specific questions are asked and answered, and ends favorably with well-informed actions. Reach out to your broker to start this process.
For more information, please contact me or learn more on our Property & Casualty page: Steve Carey, CAWC, Regional Sales Manager, at 248-530-2483 or scarey@oswaldcompanies.com.
