- “Bad news” events, impact of climate change, bankruptcies and political challenges have increasing risk implications for directors and officers (D&Os)
- Growth of securities class actions and third party funding globally means litigation against companies and their D&Os is on the rise. US, Canada and Australia see highest activity but these trends are developing around the world
- Profitability of D&O insurance sector impacted in recent years due to increasing competition, growth in lawsuits and rising claims frequency and severity. Further volatility anticipated
"Directors And Officers Insurance Insights 2020”, also examines some of the factors which are driving recent changes in the D&O insurance market after a period of sustained large loss activity.
1. More litigation coming from “bad news”
2. Climate change litigation on the rise
3. Growth of securities class actions globally
Securities class actions are growing globally as legal environments evolve. AGCS has seen increasing receptivity of governments around the world to collective redress and class actions, particularly across Europe but also in other territories such as Thailand and Saudi Arabia. At the same time the level of filing activity in the US has been at record highs in recent years with over 400 filings in both 2017 and 2018, almost double the average number of the preceding two decades. This increased activity is impacting both US and foreign companies which have securities listed directly in the US.
With global law firm, Clyde & Co, AGCS has compiled a risk map in the report which assesses the risk of a company being subject to a securities group action in a particular jurisdiction, taking into account the availability and prevalence of third party litigation funding, which is regarded as a strong factor in increased group action activity around the globe. While countries such as the US, Canada and Australia see the highest activity and most developed securities class action mechanisms, overall, such mechanisms are developing and strengthening around the world with the Netherlands, Germany, England and Wales showing notable development and increased activity in recent years.
4. Bankruptcies and political challenges impact
5. Litigation funders spread across the world
All of these mega trends are further fueled by litigation funding now becoming a global investment class, attracting investors hurt by years of low interest rates searching for higher returns.
Litigation funding reduces many of the entrance cost barriers for individuals wanting to seek compensation, although there is much debate around the remuneration model of this business. Recently, many of the largest litigation funders have set up in Europe. Although the US accounts for roughly 40% of the market, followed by Australia and the UK, other areas are opening up, such as recent authorizations for litigation funding for arbitration cases in Singapore and Hong Kong. India and parts of the Middle East are predicted to be future hotspots.
The challenging D&O insurance market
Although it is estimated around US $15bn worth of premiums are collected annually for D&O insurance the profitability of the sector has been challenged in recent years due to increasing competition, growth in the number of lawsuits and rising claims frequency and severity. AGCS has seen double digit growth in the number of claims it has received over the past five years.
Insurers are facing more legal costs due to increasing activity, as well as more settlements and claims. Another issue is that “event-driven” litigation results in aggregation issues where multiple policies may be triggered. One event could trigger both D&O and either aviation, environmental, construction, product recall or cyber insurance policy claims, for example.
“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,” says Williams. “One of the best defenses 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.”
The range of exposures facing directors and officers (D&Os) – as well as the resultant claims scenarios – have increased significantly in recent years. With corporate management under the spotlight like never before, Allianz Global Corporate & Specialty (AGCS) experts provide both a reflection of the current state of the D&O insurance market and also point the lens forward to five mega trends which lie ahead, impacting risk managers, their D&Os and their broker partners.
Newsletter
Press contacts
About Allianz Global Corporate & Specialty
Allianz Global Corporate & Specialty (AGCS) is a leading global corporate insurance carrier and a key business unit of Allianz Group. We provide risk consultancy, Property-Casualty insurance solutions and alternative risk transfer for a wide spectrum of commercial, corporate and specialty risks across 12 dedicated lines of business.
Our customers are as diverse as business can be, ranging from Fortune Global 500 companies to small businesses, and private individuals. Among them are not only the world’s largest consumer brands, tech companies and the global aviation and shipping industry, but also wineries, satellite operators or Hollywood film productions. They all look to AGCS for smart answers to their largest and most complex risks in a dynamic, multinational business environment and trust us to deliver an outstanding claims experience.
Worldwide, AGCS operates with its own teams in 33 countries and through the Allianz Group network and partners in over 200 countries and territories, employing over 4,400 people. As one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial ratings. In 2018, AGCS generated a total of €8.2 billion gross premium globally.