The range of exposures facing directors and officers (D&Os) – as well as the resultant claims scenarios – have increased significantly in recent years. With corporate management under the spotlight like never before, Allianz Global Corporate & Specialty (AGCS) experts provide both a reflection of the current state of the D&O insurance market and also point the lens forward to five mega trends which lie ahead, impacting risk managers, their D&Os and their broker partners.
5 mega trends to watch
1. D&O “bad news” litigation
AGCS continues to see more claims against D&Os emanating from “bad news” not necessarily related to financial reports. Scenarios include product problems, man-made disasters, environmental disasters, corruption and cyber-attacks. These types of “event-driven litigation” cases often result in significant securities or derivative claims from shareholders after the bad news causes a share price fall or a regulatory investigation.
2. ESG (and climate change) in focus in the boardroom
Reputation is a core concern of companies. According to the Allianz Risk Barometer 2019 survey of customers and Allianz experts, “loss of reputation or brand value” ranks as the ninth top business risk overall. Environmental, social and governance (ESG) failings often cause brand values to plummet. The social media temperature of a company is a factor examined by D&O underwriters to gauge reputational views.
3. Acceleration of securities class actions
Securities class actions, most prevalent in the US and Australia, are growing globally as legal environments evolve. AGCS has seen growing receptivity of governments to collective redress and class actions. Significantly, the EU has proposed enacting a collective redress model to allow for class actions across the union, while several of its states, such as Germany, the Netherlands and the UK, have established collective redress procedures. Canada is also an active class actions venue, and Saudi Arabia recently introduced a class action regime, including a special securities disputes tribunal.
4. Economic and political clouds ahead
With most experts including Allianz economists predicting a slow-down in economic growth, AGCS expects to see increased insolvencies which will translate into D&O claims. Business insolvencies rose in 2018 by more than 10% year-on-year, owing to a sharp surge of over 60% in China, according to Euler Hermes. This higher number of bankruptcies was driven by a persistent high level of large business insolvencies – 247 totaling more than €100bn ($111.5bn) in turnover between Q1 and Q3 2018.
5. Litigation funding a global investment class
All of these mega trends are further fueled by litigation funding now becoming a global investment class, attracting investors hurt by years of low interest rates searching for higher returns – a 2016 study indicated average return on investment (ROI) to be around 36% annually. Litigation finance reduces many of the entrance cost barriers for individuals wanting to seek compensation, although there is much debate around the remuneration model of this business.
Source: Allianz Global Corporate & Specialty
Other Allianz Global Corporate & Specialtyarticles: The 7 trends making engineering and construction projects bigger and costlier than ever