Many private companies lack risk management practices, left open to litigation

Many private companies are lacking risk management practices that could protect them from exposure to litigation and fines, according to a new survey from the Chubb Group.

Nearly three quarters (73%) of companies included in the insurance firm’s 2013 Private Company Survey use outside service providers for administering their employee benefit plans.

But only 46% are taking steps such as adequately reviewing administrative fees being charged to their plan, that can help reduce their liability exposure, Chubb says. Independent polling firm Pollara interviewed executives at 450 U.S. for-profit private companies, more than 90% of which had annual revenues of less than $25 million for the survey.

About a fifth (21%) of those companies said they use cloud providers for storing and retrieving data, but of those, only 54% said they have an incident response plan for cyber breaches, including theft of confidential customer information, Chubb notes.

And while 68% of companies surveyed are using social media, only 12% said they’re concerned about being sued for making allegedly defamatory posts, and only 49% have a written social media usage policy for employees.

“Many private companies have not taken the loss prevention measures and have not purchased the appropriate insurance to help insulate themselves from litigation, government fines and their related financial and reputational consequences,” Tracey Vispoli, senior vice president and specialty insurance global customer segments leader with the Chubb Group of Insurance Companies noted in a statement.

“This is surprising in light of the fact that a large number of these firms have been sued in recent years by employees, customers, government agencies and other parties, and many are planning to participate in activities such as mergers that can increase their risk profile.”

Among those surveyed, almost half of the companies said they have experienced at least one loss event related to directors and officers liability, employment practices liability, fiduciary liability, crime, workplace violence, or cyber liability in the past three years.

In addition, 40% of those surveyed said they’re likely to merge with or acquire another firm, reduce the size of their workforce and/or cut back on employee benefits in the next year, Chubb adds.