With the advent of the digital age Boards now operate in a much different environment. Technology has provided us with digital tools that allow the exchange of all types of communications and documents in real time with less thought and effort. Unlike the brick and mortar Boards of the past, todays interconnected world has transformed the Board and its communications and documents into a chain of un-retractable bits of risk.
The traditional protection of Director and Officer (D&O) insurance today is not enough in and of itself. This insurance was designed when a less transparent world existed and was easier and less costly to defend a claim. Insurance companies are quickly adjusting to this new reality by increasing premiums and deductibles and shrinking coverage. Because today’s digital world creates a level of exposure whereby defense costs are very unpredictable, policies must be reviewed carefully to fully understand the ever expanding caveats and exemptions. Insurance companies will tell you the game has changed and more than ever financial insurance is just not enough. Boards need to proactively manage their risk and associated liability with a framework suited for the digital age.
Boards that continue to operate and govern without a digital framework are finding it virtually impossible to adequately mitigate risk and liability exposures. It is not uncommon to find Board emails and other Board documents commingled with a Board Member’s personal and work emails and documents. This practice exposes personal and work email accounts, computers and electronic devices to scrutiny both during and after each Board Member’s tenure. Add in committee members, managers, lawyers, accountants and other professionals and the exposure grows exponentially.
Without a digital framework, when Board Members or others who serve the entity leave, many of the Board’s records leave with them. This not only leads to lack of continuity and preservation of a historical record, but also, when one Board Member leaves the next one has to try to recreate the record, rather than picking up where his predecessor left off.
This unforeseen consequence of today’s digital age is translating into serious liabilities both personal and financial. Some facts:
• During the last 10 years 64% of all Nonprofits have had a claim. More than the Private and Public sectors combined. Contradicting popular opinion that claim activity is a public company phenomenon.
• Average cost of a settlement is $28,000.
• Average legal cost of defending a claim $35,000.
• One in every 10 claims costs more than $100,000.
• In the last 12 months 41% of Nonprofit/Private organizations have experienced an increase in D&O insurance premiums.