Purchasing armor for full protection

South Africa is experiencing an increasingly litigious regulatory environment. The evidence of this can be seen by the increase in the number of cases referred to The Commission for Conciliation Mediation and Arbitration (CCMA), which hears over 200 000 unfair dismissal disputes each year.

Furthermore, it is estimated that the number of litigation cases increases by 10% year on year. This points to an increase in liability exposures faced by businesses’. The long and short of it is that a seemingly unforeseen incident can have multiple repercussions on a business, notwithstanding the reputational damage associated with the incident.

A slippery slope

Consider the following scenario as a good example of how things can go wrong in a business, and what steps could have been implemented to mitigate the disaster and crippling losses. Walsh Trading is a publically listed company on the JSE, primarily involved in the warehousing and distribution of electronic products on behalf of clients.

Upon her arrival on Monday morning, the Managing Director, Sarah Smith, suspects that the organisation has fallen victim to a hacking attack, as the computer network is down.

Although Julia Forbes, the Chief Technology Officer, is hot on the case and manages to restore the organisation’s computer network, it takes her three days to do so, resulting in R5million in lost revenue.

Further, Smith fires Forbes in a state of rage due to the time taken to restore the network; not following due procedure as stated in the organisation’s HR manual. Forbes decides to take the business to the CCMA on allegations of an unfair dismissal.

No respite

Following an initial investigation, it transpires that R500 000 was also stolen out of the businesses bank account. A further blow to the company follows weeks later, as confidential client information is leaked into the public sphere by an anonymous source.

This gives rise to reputational damage as a result of the media reporting on the subject, and this damage causes a drop in the company’s share price. To add insult to injury, the disgruntled shareholders launch an action against Forbes and Smith in their personal capacity, alleging that the directors were negligent by not practicing sound corporate governance, leading to the mismanagement of the business and subsequent drop in the share price.

Finding solid ground

It is frightening to consider that the above scenario was triggered by a single incident: a cyber-event best described as a malicious hack attack. Let us deliberate on the various
insurance policies available to Walsh Trading Limited, which would have certainly managed
and mitigated the losses and exposures faced by the organisation and its stakeholders.

• An employment practice liability policy protects the insured business against allegations of unfair labour practices. The CCMA and/or labour court may issue an award in favour of the employee, Julia Forbes, should it be found that Forbes was unfairly dismissed.
• A cyber liability policy, amongst various other covers, indemnifies the insured for lost revenue and the costs associated with business interruption as a result of a hack attack.
• Commercial crime policies not only address losses linked to computer fraud, but it also protects the insured business against employee theft and fraud of its own money and property, or money and property for which the business is legally responsible.
• A Directors and Officers liability policy protects the directors and officers, managers or supervisors, in their personal capacity.

By bundling products and services, not only does one address an assortment of threats across a variety of potential business risks, but insureds often benefit from a direct discount in premium.

This is because product providers generally offer packaged discounts should multiple or bundled products, a mix of covers all thrown into a single offering, be purchased from a single insurer.