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The risk and liability outlook for directors and officers (D&Os) is growing more complex. In addition to the risks engendered by the coronavirus (COVID-19) pandemic, companies are facing other evolving challenges, from the worsening climate crisis and inflation, to the war in Ukraine and cyber attacks and everything in between. Against this backdrop, D&Os may find themselves in the firing line. It is imperative that companies stay informed on trends in the D&O insurance market, and regularly review and update their D&O policies. Failure to do so could impact the adequacy of coverage, particularly in a hardening D&O insurance market. In light of current economic and geopolitical volatility, D&Os must monitor and document how they are fulfilling their fiduciary duties and exercising proper business judgment.

UNITED STATES

Holland & Knight

“Understanding risk is not a once-a-year project. The directors and officers (D&Os) insurance market is constantly changing. Insurance carriers are always monitoring risk trends and making changes to their policy terms and pricing accordingly. A company that is not doing the same cannot keep up. Unfortunately, most D&Os have little day-to-day exposure to the different policy terms that are available or the most up-to-date issues in the insurance industry. That is why it is critically important for insureds to regularly review their D&O policies with an experienced D&O insurance broker and an insurance attorney specialising in D&O insurance coverage.”

CANADA

Lax O’Sullivan Lisus Gottlieb LLP

“One driver of risk for directors & officers (D&Os) is the pronounced increase in shareholder activism, both in Canada and globally, with investors approaching boards more frequently, and relying more on social media to coordinate class action lawsuits. There has also been a corresponding increase in regulatory activism, with regulators more aggressively enforcing D&O accountability measures for failures to mitigate risk. Another factor driving personal risks for D&Os is the steady increase in the availability of litigation funding, providing potential plaintiffs and class groups with the financial resources to finance complex and protracted lawsuits against D&Os.”

BRAZIL

Aon

“The current global landscape has brought new challenges and increased liabilities upon directors and officers (D&Os). The business environment has been drastically altered by crises related to climate change, the speed of technological development, inflationary pressures, and changes in consumer behaviour. In addition, the impacts on supply chains created by the coronavirus (COVID-19) pandemic have been compounded by political trends restricting the interdependence between public and private initiatives. Both climate-related issues and technological dependency represent immediate priorities for companies and their leadership, as well as long-term challenges.”

UNITED KINGDOM

Beazley

“We recognise that there is considerable change on the horizon as environmental, social and governance (ESG) has become a key focus for individuals, businesses, investors, regulators, governments and society as a whole, and therefore ESG considerations already form a significant part of the underwriting process. Client selection is important, and underwriters want to build relationships with and support other responsible businesses. Organisations that are strong in this area will be better performing in the medium to long term. It is therefore important that underwriting processes identify those companies that are embracing ESG risk in a positive way.”

BELGIUM

CMS

“We believe the coronavirus (COVID-19) pandemic and the increased awareness of climate change and the increased importance of environmental, social and governance (ESG) are the key factors currently driving the personal risks facing directors and officers (D&Os) in today’s market. The COVID-19 pandemic caused financial distress to a wide range of companies. Directors have been taken out of their comfort zones repeatedly, having had to take decisions which, in normal circumstances, might not always be decisions that a normal and prudent director would reasonably have taken.”

SPAIN

Aon Spain

“We are in a period of significant uncertainty with respect to D&O risk exposures. Financially, we are facing a period of global crisis, where certain geopolitical events, such as Russia’s invasion of Ukraine and supply chain difficulties, are creating issues for corporate management and testing the resilience of boards, particularly since the end of the bankruptcy moratorium in Spain, which expired on 30 June 2022. As such, there was an increase in insolvency applications at the start of the summer, which is expected to peak in the autumn.”

AUSTRALIA

Herbert Smith Freehills

“There are several factors driving personal directors and officers (D&Os) risks in Australia. D&Os face an increasing number of avenues for potential personal liability through a complex suite of regulations applying under federal and state legislation. These may relate to financial regulation, governance regulation, workplace health and safety and environmental regulation, to name a few. Financial penalties can be significant, and in many circumstances may be uninsurable. The risk is compounded by a trend toward regulators becoming more active and aggressive, and demonstrating a willingness to take on novel approaches.”

UNITED ARAB EMIRATES

Norton Rose Fulbright (Middle East) LLP

“The United Arab Emirates’ (UAE’s) regulators, legislatures and courts have, in the last few years, increased their focus on the attribution of responsibility to management individuals within organisations, holding them accountable and liable for a range of issues. This trend is visible across sectors, including financial services, retail and construction, and relates to a range of issues from risks relating to debt, to health and safety, to bribery and corruption. In addition to this trend, there are specific laws that have come into force in recent years which impose liabilities on directors & officers (D&Os), such as the UAE commercial companies law and the UAE bankruptcy law.”

SOUTH AFRICA

Werksmans Attorneys

“A key issue driving personal risks faced by directors and officers (D&O) in South Africa is the Judicial Commission of Inquiry into allegations of State Capture, Corruption and Fraud in the Public Sector. The inquiry has brought corporate governance to the forefront, and this has led to increased scrutiny by regulators into the affairs of companies and the conduct of their D&Os which has presented significant implications for D&Os, as well as the companies underwriting D&O insurance. Environmental, social and governance (ESG) matters also feature as a significant key factor driving personal risk faced by D&Os in today’s market.”

CONTRIBUTORS

Aon

Beazley

CMS

Herbert Smith Freehills

Holland & Knight

Lax O’Sullivan Lisus Gottlieb LLP

Norton Rose Fulbright (Middle East) LLP

Werksmans Attorneys