Marsh’s CCO Preferred

Innovation at Work

Behind the scenes in the creation of Marsh’s CCO Preferred

Marsh’s Mach Millett gets a lot of phone calls about specific coverage or claims questions related to financial and professional liability. But several calls asking the same question in a span of two weeks in early 2016 alerted Mach, the chief innovation officer for Marsh’s FINPRO Practice, to a developing insurance need.

Clients wanted to know whether insurance coverage was available to protect chief compliance officers, who were increasingly concerned about actions by US regulators singling out CCOs for their alleged failure to prevent and detect corporate compliance failures. Without tailored insurance protection, CCOs could be on the hook for thousands if not millions of dollars in legal defense costs and ensuing fines and penalties.

His interest piqued, Mach began researching the regulatory environment, including recent cases against CCOs and how they might play out under existing financial and professional liability insurance policies.

“I determined that while there was insurance coverage out there that would help CCOs in a lot of different situations, it wouldn’t necessarily cover all of the scenarios we have seen, particularly when it comes to regulatory actions and fines and penalties,” he said. He knew that in order to address that exposure, a unique, dedicated insurance solution for CCOs was necessary.

Putting himself in their shoes

As a former securities litigator, Mach had worked with a number of different CCOs over the years on regulatory issues. He also was very familiar with the Securities and Exchange Commission (SEC) — one of the more active regulators pursuing CCOs today. It also didn’t hurt that he spent five years working as outside counsel representing insurers in insurance coverage dispute cases and another six years as a claims advocate at Marsh.

“I wanted to create a product that I would want if I were a CCO,” he said. “By putting myself in their shoes, a couple of things stood out that I would want addressed.”

First, he considered the issue of shared limits under existing directors and officers liability (D&O) insurance programs: “Under existing insurance products, I would have to share my insurance limits with other directors and officers and potentially the company itself. Given the unique exposure facing CCOs, I would want a dedicated policy just for me.”

Second, he looked at D&O coverage for fines and penalties: “Given the way regulators have sought to handle their enforcements though fines and penalties, as a CCO, I would want coverage for that to the extent insurable.”

Finally, he thought about a CCO’s duties: “I wanted to make sure that a new product wasn’t just nebulous coverage for CCOs acting in their status or capacity as such. It should specifically extend coverage to what a CCO does on a daily basis and what they typically get pursued for by regulators. And that means considering allegations that they somehow failed in their design, implementation, and oversight of compliance policies and procedures.”

Moreover, Mach felt it was important to design a product that would provide meaningful protection for CCOs who increasingly face liability despite not having known about or participated in the wrongful conduct. “We did not want to provide coverage for individuals who consciously disregarded their responsibilities and/or intentionally acted wrongfully,” he said.

With these considerations in mind, Mach drafted a policy and presented it to Marsh’s industry experts and compliance team, and a few outside CCOs to gauge interest. “The response was very positive,” he said.

The next step was to find underwriters willing to put their capital behind the product. Due to the insurability issue in the US around fines and penalties, Mach turned to Marsh’s local expertise  in Bermuda and London. While convincing insurers to underwrite a new policy might be hard in some cases, it was not the case for this product.

“It wasn’t a difficult sell at all,” Mach said. “The basic feedback from underwriters was: ‘This is a great idea; we think it makes sense; we think it’s an extension of things we’ve thought about before, and we are on board.’”

With more than $50 million in committed capacity behind him, Mach brought the product through Marsh’s internal Innovation Council, which evaluates new product marketability, liability, public relations and the like.

Six months after Mach received those intriguing phone calls, Marsh launched CCO Preferred.

“Within the first week, I had about 50 inquiries from colleagues on behalf of clients, and from clients and prospects directly,” Mach said, though he was not surprised. “There was obvious demand for a product like this. Clients rely on Marsh to create solutions when there’s a void in the market, and this is a clear example of that innovation in practice.”