Canadian companies looking to improve their directors and officers coverage should act soon, as signs of a leveling D&O market begin to emerge, according to Michael Hunziker (pictured), senior vice-president and FINPRO national claims leader, Canada, at Marsh.
The Canadian market isn’t seeing dramatic changes yet, Hunziker told Insurance Business. But conditions south of the border may be a warning, he said.
“There’s been a subtle stabilizing of the D&O market in the United States, and that may signal that the opportunities that people have to improve their program in the way that I mentioned before may slowly be coming to an end,” Hunziker said.
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With consolidation among some carriers, the Canadian market also appears to be moving in that direction, he said.
“We’ve seen some upward pricing pressure, so it does look like that we might be heading in that direction,” Hunziker said.
Companies that want better wordings or broader coverage should look at it sooner rather than later, he said.
Hunziker defined “shareholder activism as the use of shareholder rights to leverage change at a company.” Activists typically push for a new board, strategy or management because they believe the changes will increase the value of their investment.
There isn’t always a clear trigger for a claim, because campaigns move fast and can lead to litigation, sometimes against executives personally, he said. In the early stages, activism can trigger specialized coverages, such as PR or crisis expenses, that exist on some policies but not all.
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“The high costs that you see in the newspapers aren’t necessarily covered,” Hunziker said.
Coverage can depend on how a campaign unfolds, he said. An activist may challenge the wording of a company’s proxy circular in a proxy battle, where the activist competes with the board for shareholder votes, and that can trigger a securities claim. Claims can also arise if activists name individual directors or officers.
More often, though, the exposure comes from what follows a campaign, such as securities or breach of fiduciary duty claims, he said.
“The real D&O risk is the stuff that’s happening alongside activism,” Hunziker said.
During a proxy contest, companies need financial advisers, proxy advisers and lawyers, Hunziker said.
“Those costs typically aren’t covered,” he said.
The bigger misconception may run the other way, he said. Not every executive knows that some policies carry extensions, such as crisis fund or PR coverage, that can respond to activism.
“If anything, there’s sometimes an assumption that things are not covered,” Hunziker said.
Brokers should be part of the conversation when a campaign begins, he said, “because it’s not always clear what may be covered.”
Hunziker said the time to act is before activists arrive.
“You can’t really do much to change the coverages that you have once an activist campaign is underway,” he said.
Wordings differ from one policy to the next, Hunziker added.
“Not every policy is the same. Wordings are different. Some are better than others,” he said.
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Companies should stress test their programs and challenge their brokers and carrier partners to secure the best possible wording before a campaign starts, he said. On the governance side, he said “it’s important to organize a plan before shareholder activism appears,” including deciding who is primarily responsible, typically within the general counsel’s function, and making sure there is a clear line to risk management, the broker and the carriers.
Shareholder activism has risen over the past 20 years, Hunziker said, but it is difficult to tie D&O pricing directly to activism. Activists tend to target underperforming companies, and the sectors most exposed shift with the broader economy.
“It’s hard to attribute pricing changes to activism itself, but companies with higher risk profiles that tend to attract activism also tend to be vulnerable to other kinds of claims as well,” Hunziker said, pointing mainly to securities claims.
Looking to 2027, Hunziker expects activism to grow more complex. Proxy advisory firm Glass Lewis is moving away from issuing a single benchmark voting recommendation, and regulators are weighing questions about robo-voting and tokenization, he said.
Those changes increase the risk of a misstep for companies facing activists, Hunziker said.
“Bottom line, really, from an insurance and risk management perspective, is that all of these issues are complex, fluid, and a bit uncertain,” he said.
