Welcome to the first edition of “This Week In Risk Management,” a new series bringing you risk management insights directly from the Founder Shield team. In each edition, we’ll take a look at some recent stories that caught our eye, from regulator enforcements, cyber attacks, lawsuits to insurance market trends. Our goal with this series is to help you understand evolving risks and provide insight into how they may affect your business.
There’s a science to why we can’t look away from tragedy. It’s because these tragic events trigger our survival instincts. So, staring unabashedly at the aftermath of a crisis is in our nature. But it’s more than loving a good slo-mo trainwreck. We have a massive capacity to learn from others’ wins and losses. Fortunately, we have some juicy risk management issues to review in this post, so put on your thinking hat.
Robinhood Ordered to Pay $70 Million
If you’ve been in a cave all this week, FINRA fined Robinhood $57 million, plus nearly $13 million in restitution to thousands of clients. It’s the largest-ever FINRA penalty, more than a mere wrist slap, per se.
Here’s the kicker, it’s interesting to see such a complex business face such cookie-cutter D&O allegations. From “systematic supervisory failure” to “giving false and misleading information,” this case very much screams D&O issue. Plus, we wonder how this litigation impacts their IPO. And further still, will litigation arise from their decision to IPO, especially amid current legal issues and user backlash.
We’re waiting for the formal allegations, but it appears that the penalty FINRA assessed of Robinhood is exclusively that: a penalty assessed to the company (as opposed to against any individuals). In the D&O insurance world, this emphasizes the importance of Side C coverage (Entity coverage).
These complications make us curious if investors are still confident in senior management’s ability to lead, or are we looking at another WeWork situation where fresh leadership is forced in via lead investors?
Ransomware Hackers Attack 200 US Firms
Over the holiday weekend, a group of hackers attacked 200 US companies by breaching Kaseya — an IT firm based in Miami, FL — demanding a ransom of $70 million in bitcoin. Unfortunately, this is only the latest vicious cyberattack — but likely not the last this year.
Consider that when hackers breached one particular company, they accessed three of that company’s clients. This infiltration led them to over 1,000 other companies. It shows that no one is immune to these attacks; hackers target businesses of all sizes in all industries. It’s the single largest exposure for cyber policies.
Nowadays, insurers require ransomware-specific applications for most cyber insurance renewals, making MFA, cloud backups, and system recovery processes more essential than ever. There’s much to be said of business interruption and cyber extortion coverage; watching attacks of lock-outs force companies to shut down their operations.
DraftKings Hit with SPAC-Related Securities Suit
In yet another example of the increasingly litigious SPAC world, D&O Diaries reports DraftKings’ case as the 15th SPAC-related suit of 2021. The allegations? Pre- and post-SPAC-merger activity of one of the merged companies. The impact? D&O insurance prices continue to climb.
So, let’s get the microscope out. “Fringe” industries (i.e., gambling, cannabis, etc.) continue to see a shrinking marketplace, more restrictive coverage, and higher pricing than the “standard” market. This case is a prime example of how critical proper D&O coverage is throughout the company’s life cycle. Did you notice that these allegations span from pre-SPAC to de-SPAC? Plus, the suit names executives from multiple companies involved in the SPAC transaction.
Olympics-Related Losses Potentially Less Than Predicted
Even with no fans or audiences, the 2021 Olympic Games are still going on. Strangely enough, the empty seats aren’t holes in anyone’s pockets. Instead, they are a patch on what could have been a loss of over $2.5 billion in potential insurance claims. Those estimates are being revised substantially downward to the range of $300–400 million.
The IOC, the Tokyo Organizing Committee, sponsors, broadcasters, to name a few, would have experienced crushing financial loss had the games been ultimately canceled — but that’s not what’s happening. However, the types of claims likely to be paid are for specific events that may not be held and business income losses that are COVID-19-related.