Directors in New Zealand and Australia are facing the most volatile and restrictive liability insurance market in living memory, and it is unlikely to improve soon, according to a report released by the Institute of Directors (IoD).
The report, which was produced in cooperation with Marsh and MinterEllisonRuddWatts, said that claims payments have exceeded the premium pool, with the continued emergence of litigation funders and an evolving New Zealand regulatory environment.
“Insurers are increasingly cautious when considering renewals or applications, often requiring greater access to organisations and their boards,” said Marsh chief client officer Steve Walsh. “Premiums and excesses are climbing and some insurers are exiting the market altogether.”
Thus, directors must play an active role in obtaining the necessary liability cover for themselves and their organisations.
“This could include meeting with insurers to provide insights into the company and board structure, as well as their own competency and qualifications,” Walsh said.
In this environment, D&O insurance is more crucial than ever.
“Good governance is integral to successful, sustainable organisations,” said IoD governance leadership centre and membership general manager Felicity Caird. “Strong directors leverage their experience and professional instincts to move an organisation forward; it requires focus and often courage. This is difficult if they’re constantly looking over their shoulder, worrying about personal liability.”
Not-for-profit organisations are quite vulnerable due to the financial difficulties arising from decreased fundraising opportunities due to the COVID-19 pandemic. However, Walsh noted that insurers in New Zealand have been more sympathetic to the NFP sector, in terms of renewals and premiums.
Meanwhile, MinterEllisonRuddWatts partner Andrew Horne gave some advice on what to look for in a D&O policy.
“Some key issues directors should be looking for are: whether coverage includes investigation costs, separate defence costs, and adequate cover for individual representation, as well as whether it excludes insolvency-related claims or cover for capital raising or claims by majority shareholders,” he said.