Managing employee benefit plans is risky business for staffing firms — one small mistake can lead to costly lawsuits. Fiduciary liability insurance is essential for protecting staffing firms from benefits-related legal and financial pitfalls. As an insurance agent, your role is to help these firms secure the right coverage to mitigate these risks.
What Is Fiduciary Liability Insurance?
Fiduciary liability insurance is a specialized type of coverage that protects businesses from claims related to the mismanagement of employee benefit plans and breaches of fiduciary duty.
It covers various risks, such as allegations of imprudent investment choices, failure to follow plan documents, and errors in plan administration.
This coverage is especially relevant to staffing firms because they often manage various benefit plans for their employees, including retirement plans and health benefits. Without this insurance, temporary staffing firms could face significant legal costs and financial penalties if they are sued for mishandling these responsibilities.
Fiduciary Liability Vs. Employment Practices Liability
Some firms may confuse fiduciary liability insurance with employment practices liability insurance. However, each covers different types of risks.
Fiduciary liability coverage protects against claims related to the mismanagement of employee benefit plans. For example, if a staffing firm allegedly fails to properly invest employee retirement funds, fiduciary liability insurance would cover the legal defense costs and any potential settlements.
In contrast, employment practices liability insurance covers claims related to employment issues such as discrimination, wrongful termination, and harassment. For instance, if an employee sues for wrongful termination, employment practices liability would handle the legal costs associated with that claim.
Understanding these distinctions helps staffing firms ensure they have the appropriate coverage for various scenarios they might face.
Importance of Fiduciary Liability Insurance for Temporary Staffing Firms
Fiduciary liability insurance is crucial for staffing firms managing their employees’ benefit plans. This type of insurance protects the firms from substantial out-of-pocket expenses related to legal defense and settlements. It also alleviates the financial burden associated with regulatory penalties and fines.
Breaches of fiduciary duty are frequently investigated by the Financial Industry Regulatory Authority (FINRA), the agency responsible for regulating the securities industry and enforcing compliance with its rules. Bracewell, a provider of legal and advocacy services, reports some notable dispute resolution statistics from FINRA:
- The number of arbitration filings has increased by more than 25% since 2023.
- Customer claims have gone up by 11%.
- The number of industry disputes was 52% higher than in 2022.
- Breach of fiduciary duty remains the most frequent customer claim, with a total of 1,518 cases.
These statistics underscore the importance of having fiduciary liability insurance. This insurance provides staffing firms with peace of mind and financial protection, allowing them to focus on their core business operations without fearing legal and financial disputes.
Best Practices for Insurance Agents
Here are some ways insurance agents can help staffing companies understand and implement fiduciary liability coverage.
Conduct Risk Assessments
Evaluate the specific fiduciary risks that staffing firms face. Understand their employee benefit plans, and identify potential areas of vulnerability.
Educate Your Clients
Clearly explain the importance of fiduciary liability insurance and how it differs from other types of coverage. Use real-life examples to illustrate potential risks and claims.
Customize Insurance Solutions
Tailor fiduciary liability policies to meet each firm’s unique needs. Ensure the coverage limits and terms align with their specific risks and operations.
Promote Proactive Risk Management
Encourage staffing firms to adopt best practices in managing employee benefit plans. Key steps include conducting regular audits, maintaining thorough documentation, and providing ongoing employee training.
Overall, fiduciary liability insurance is essential for protecting temporary staffing firms from the complex legal and financial risks associated with managing employee benefit plans. As an insurance agent, your guidance can help them navigate these challenges effectively.
Contact us today to learn more about how we can help you provide the best solutions for your staffing firm clients.
About World Wide Specialty Programs
For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and are committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage we have available to protect your staffing business, give us a call at (877) 256-0468 to speak with one of our representatives.