Survey: Private Firms Worry About Employee Suits, Thefts and Data Breaches

October 28, 2010

Nearly half (44 percent) of private company executives expect their firms will add jobs by year end, and more than half (54 percent) plan to expand product or service offerings. Another 12 percent of those same executives anticipate completing a major acquisition in the near future.

That’s according to executives who responded to the 2010 Chubb Private Company Risk Survey.

Thirty-six percent of respondents indicated that an employment practices liability (EPL) lawsuit was the loss event that would cause the most financial damage to their company. Employee theft (18 percent) and a breach of electronically-stored private customer data (15 percent) were also ranked as potentially damaging.

Nearly one in five (16 percent) respondents anticipated that an EPL charge would be lodged against their firm in the next 12 months. Twenty-one percent experienced such an action during the past five years, with loss costs as much as $750,000.

“While such actions may spur business growth for private companies as they try to recover from difficult economic circumstances, they may also increase their exposure to liability claims and lawsuits,” said Lisa Jones, vice president and private commercial product manager for Chubb Specialty Insurance.

Fifty-four percent anticipated that employees would steal company funds, equipment, inventory or merchandise in the next 12 months. This compares to 30 percent of companies experiencing such thefts in the past five years.

Ninety-two percent of the survey respondents did not believe that it is likely that they would endure an electronic breach of confidential customer information that would require them to comply with costly notification laws in more than 40 states. A strong majority (67 percent) of the companies in the survey do not have an incident response plan for an electronic security breach. This is despite their concern of the financial consequences of a breach. A recent Symantec survey that found that 73 percent of small and mid-sized companies experienced a cyber attack in 2009.

One in six company executives (17 percent) believe it is likely their company will experience a directors and officers (D&O) liability-related loss in the coming year. One in eight survey respondents (12 percent) experienced a D&O lawsuit within the past five years. Settlement and litigation costs averaged $225,682, with some losses approaching $5 million.

In the next 12 months, one in four (25 percent) of survey respondents indicated that their firm is likely to change their employee benefits plans — an event which can spur fiduciary liability lawsuits.

The Chubb Private Company Risk Survey was conducted by Pollara, an independent public opinion and market research firm. The firm interviewed decision makers at 451 U.S. for-profit companies, more than 90 percent of which had annual revenues of less than $25 million. Chubb also sponsored the survey in 2007, 2005 and 2003.

Source: Chubb Group of Insurance Companies

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