Personal Finance

Insurers grow wary of 'high-risk' executives in wake of #MeToo movement

Key Points
  • A number of companies that sell so-called employment practices liability insurance are demanding higher deductibles or restricting coverage for businesses in high-risk industries such as entertainment, a new survey shows.
  • The survey results come just weeks after reports that insurers were prepared to pay out $47 million related to sexual harassment and assault allegations against movie mogul Harvey Weinstein.
  • "Insurance companies have cut back on their willingness to take chances," said Richard S. Betterley, an insurance consultant.
Beau Lark/Corbis/VCG

The #MeToo movement is forcing insurers who provide coverage for high-profile executives accused of sexual harassment and assault, such as disgraced Hollywood producer Harvey Weinstein, to rethink their business.

A number of companies that sell so-called employment practices liability insurance are demanding higher deductibles, restricting coverage for businesses in high-risk industries such as entertainment, and demanding information about companies' sexual harassment policies, confidential settlements and even the level of activity on employee hotlines, a new survey shows.

Insurance companies have cut back on their willingness to take chances.
Richard S. Betterley
insurance consultant

The survey results come just weeks after reports that insurers were prepared to pay out $47 million related to sexual harassment and assault allegations against Weinstein. He has denied having nonconsensual sex with his accusers.

"Insurance companies have cut back on their willingness to take chances," said Richard S. Betterley, an insurance consultant who since 1994 has published an annual survey of businesses that offer such policies.

As a result, insurers in the survey said they have raised premiums as much as 25% over the past year for the industries they are still willing to underwrite.

New level of caution

"Last year, the insurance companies were saying 'We'll keep an eye on it,'" said Betterley. "Well, this year, there's a whole new level of caution."

While this type of insurance often covers other workplace claims, such as wrongful termination and wage and hour disputes, it has landed in the spotlight for its sexual harassment component as companies increasingly look to their insurers to pay the awards and settlements they're facing in the #MeToo era.

Sales of sexual harassment insurance took off after the 1991 testimony of Anita Hill in the Supreme Court confirmation hearings of Clarence Thomas, Betterley said. Back then, about five companies offered this coverage; today, more than 50 do, including AIG, Chubb, The Hartford and Travelers, he said. Representatives of those companies either declined to comment or were not available to respond.

Premiums will total $2.56 billion this year, up from $2.46 billion in 2018, according to insurance data provider ISO MarketStance, which expects premiums to reach $2.75 billion in 2020.

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Industries insurers are now shying away from include financial companies and law firms, followed by the entertainment and adult entertainment businesses, the survey found. The 32 companies in Betterley's survey collectively cited 141 industries they were refusing to underwrite, up from 132 last year and 127 in 2017.

Insurers are particularly nervous about taking on clients in the entertainment business or any company with a "star" executive, Betterley said.

Underwriters are also getting more proactive in looking for red flags that could signal harassment or other forms of discrimination. Several told Betterley that they are on the lookout for examples of pay disparities at the companies they insure – a possible motivation for litigation in the future.

The role of insurers who offer sexual harassment coverage can be controversial.

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The proposed $47 million Weinstein deal has come under criticism by Douglas Wigdor, a New York employment lawyer who represents former model Kaja Sokola, actress Wedil David and a "Jane Doe" who is planning to testify against Weinstein in his criminal trial next month. All three women have accused him of assault.

Wigdor said in an interview with CNBC.com that in the typical case, insurance companies "put the screws to insureds" to make large contributions to settlements, which reportedly didn't happen in this case, meaning insurers would be on the hook for the full amount.

He said the settlement, which puts aside $12 million to repay some of the defense costs to Weinstein, his brother, Bob and other former directors at Weinstein's company, is "the worst settlement I've ever seen." Wigdor says the amount of money going to Weinstein's accusers is far too small and that it's "ridiculous" that the deal would pay legal costs for directors who allegedly enabled Weinstein.

And only $25 million would go to the more than 30 victims who have accused the movie mogul of sexual harassment and rape.

Paula Brantner, a consultant who helps companies address sexual harassment and toxic workplace environments, said she's pleased to hear that insurers are starting to research client companies' corporate cultures. However, she says it's impossible to turn up some of the big offenders because bad companies have been known to suppress information about harassment for years without detection.

It's a start that insurers are raising questions about culture, she said. However, with widespread use of mandatory arbitration and nondisclosure agreements to stifle victims, she said the obstacles to getting an accurate read on a potentially toxic client are daunting.