Insolvencies, cyber and ESG scrutiny top D&O risks in 2021

In September 2020 an Airmic Pulse Survey of Leadership Group members revealed that one fifth of respondents saw D&O rates rises of more than 400%, while two thirds complained of poor and late communication from insurance partners.

Launching its D&O Insurance Insights 2021 report, AGCS said an already strained D&O market was being compounded by “known unknowns” such as climate change, cyber and the challenges concerning environmental, social and corporate governance (ESG).

The insurer added that publicly-listed companies generally had greater exposure, but the pandemic was also increasing the litigation risk for private companies and their management.

“Many insurers are still digesting the effect of previous pricing inadequacy and exposure and loss trend increases from prior-year policies,” said Shanil Williams, global head of financial lines at AGCS.

“This is also at a time of great uncertainty around forward-looking exposure assessments, in particular the impact of Covid-19 on the economy in general and on specific industries. Combined with many ‘known unknowns’ like climate change, cyber risks or environmental, social or governance (ESG) factors, this has created a lot of nervousness in this sector. As a global D&O insurer, AGCS remains committed to working in partnership with our customers to ensure we have sustainable solutions for all parties involved.”

Insolvencies are of high concern in the D&O market with the majority expected to come through in the first half of 2021 according to Euler Hermes. Its global insolvency index could hit a record high for bankruptcies, up 35% by end of 2021, and with top increases expected in the US, Brazil, China and core European countries such as UK, Italy, Belgium and France.

“The impact of the gradual phasing out of temporary policy measures designed to support companies is one of the key concerns for 2021,” said David Van den Berghe, global head of financial institutions at AGCS.

A fast-evolving landscape of cyber security threats, including ransomware attacks and data breaches, in addition to the shift to remote working has generally increased security vulnerabilities. AGCS added that investors view cyber risk management and adequate security standards as a critical component of a board’s oversight responsibilities.

Outside of financial performance and shareholder value, the report said increasingly ‘soft’ management topics are triggering so called “event-driven litigation” against boards. Diversity, climate change or ESG concerns are increasingly seen as opportunities to bring class actions or to force a settlement. Companies around the world find themselves under increasing public scrutiny regarding their ESG performance.

“Social justice protests, activist investor campaigns or money laundering schemes could all develop into litigation trends, as could single catastrophic events such as a plane crash or the California wildfires,” said Joana Moniz, global head of commercial financial lines at AGCS.

Climate-change-driven activism and litigation has been on the rise in recent year as well. Cases targeting major carbon-emitting industries have been filed in more than 30 countries, although most cases are filed in the US.

Read the full AGCS its D&O Insurance Insights 2021 report here.