Industrial insurer Allianz Global Corporate & Specialty (AGCS) has identified the risk trends directors and officers (D&O) should watch out for next year.
According to AGCS’s Directors and Officers Insurance Insights 2020, there are five trends that will impact not only company executives but also risk managers and broker partners. These are increased D&O ‘bad news’ litigation; rise in climate change litigation; growth of securities class actions globally; further bankruptcies and political challenges; and litigation funding becoming a global investment class.
“AGCS continues to see more claims against D&Os emanating from ‘bad news’ events not necessarily related to financial results,” noted Shanil Williams, global head of financial lines at AGCS. “Scenarios include product problems, man-made disasters, environmental disasters, corruption, and cyberattacks.”
The insurer explained that these types of cases often result in significant securities or derivative claims from shareholders following a fall in share price or the launch of a regulatory probe due to the bad news.
As for litigation related to climate change, Williams said directors will be held responsible for how environmental, social, and governance (ESG) issues and climate change are addressed at a corporate level. “Increasingly, they will have to consider the impact of these when looking at strategy, governance, risk management, and financial reporting,” Williams said.
Meanwhile AGCS has seen increasing receptivity from governments to collective redress and class actions. The Allianz unit also expects more insolvencies, which may potentially translate into D&O claims. At the same time it pointed to litigation funders spread across the world.
“D&O insurance addresses the intrinsic strategic risks of corporations and their senior management, and over the past year the D&O market has seen major change and likely will experience further volatility in 2020,” asserted Williams.
“One of the best defences to protect against such volatility is for risk managers and their D&Os to maintain an open dialogue with underwriters and brokers so that all parties can gain a better understanding of the risk culture and governance within an organization.”