New Zealand business leaders could see more increases in their liability insurance premiums due to multiple new and emerging risks, according to a cross-industry report.
The report, published by the Institute of Directors (IoD), Dentons Kensington Swan and Marsh NZ, said the New Zealand directors and officers (D&O) insurance market will be impacted by an increasing number of factors, including the rising prominence of environmental, social and governance (ESG) matters, increased regulatory obligations, and the impact of COVID-19.
Due to the increasingly complex issues faced by boards today, insurers are concerned that changing regulatory and stakeholder expectations will increase directors’ exposure to new and emerging areas of risk, the report said.
IoD chief executive Kirsten Patterson said climate reporting, as well as broader sustainability reporting, is becoming standard business practice, and this puts new pressures – and potential liabilities – on directors.
“Directors are facing new challenges as they seek to navigate their organisations through changing regulatory, shareholder and societal expectations,” Patterson said. “While insurers are worried about the impact of these increasing obligations on directors, we are pleased to see boards have focused their attention on them.”
Patterson cited the IoD’s 2021 Director Sentiment Survey, where 48% of boards said they were engaged and proactive on climate change risks, up from 35% in 2020.
Steve Walsh, chief client officer of Marsh NZ, said the insurance industry is factoring in expectations that the advancement of climate-related disclosures will drive broader ESG reporting requirements for many organisations.
“We are seeing increasing global scrutiny of climate action, environmental impacts and a demand for sustainability reporting more generally from investors and governments,” Walsh said. “This is causing the insurance industry to take a cautious approach to D&O insurance and to seek more information from companies before setting policies.”
Dentons Kensington Swan partner David Campbell said the evolving class actions regime and the growth of the third-party litigation funding market in New Zealand also drive uncertainty in the 2022 D&O insurance market.
“Companies seeking to obtain insurance cover for directors in the face of new and evolving areas of risk need to navigate this rising sea of change,” Campbell said.
These elevated risks have led to more expensive D&O premiums, with average increases of between 30% and 50% for NZX-listed companies in 2021, according to Walsh.
