Allianz says company directors, officers face series of risks in 2021  

By Zainab Iwayemi

Allianz Global Corporate & Specialty (AGCS) in a new report has stated that the Coronavirus pandemic has rendered business environment volatile, thereby exposing directors and officers of companies to series of heightened risk for the coming year 2021.

The report noted factors such as insolvency exposure, growing cybersecurity risks and persistent securities class-action activity, as key risk for top managers of businesses to watch out for. It also added that there is the need to guard against litigation that could arise from inaction on diversity, poor sustainability performance, or underestimating or misrepresenting COVID-19 risks.

Directors and officers (D&O) liability insurance is insurance coverage that aims to protect individuals – director or an officer of a business or other type of organisation – from personal losses when the business is sued. It can also include the legal fees coupled with other costs the organisation may incur as a result of such a suit.

ACGS noted: “Growth in the number of lawsuits, as well as rising claims frequency and severity, has already resulted in a difficult environment for the D&O insurance sector in recent years. Underwriting results have been negative in many markets around the world, including Australia, the UK, the US and parts of Europe. While the market was correcting itself at the beginning of 2020, it was then hit by the current pandemic and economic crisis.”

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

Major concern

In concurrence with the findings of a credit insurance company, Euler Hermes (which revealed that most insolvencies are still to come through the first half of 2021),  ACGS report noted that forthcoming insolvency warning is a major concern for D&O insurance sector.

Euler Hermes reported that the global insolvency index would likely rise to hit bankruptcies level up 35% by the end of next year in the US, Brazil, China, and European countries, including the UK, Italy, Belgium and France.

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

“The cybersecurity threat landscape is also constantly evolving, with ransomware attacks and data breaches on the rise. The COVID-19 related shift to remote work has also increased security vulnerabilities,” he added.

Increasing ESG and private company issues

According to AGCS, the past few years has witnessed a rise in Environmental, Social and Governmental concerns coupled with private company issues leading to increment in event-driven litigation. An instance is Facebook, Oracle and Qualcom, being subjected to diversity derivative lawsuits with shareholders alleging that directors violated their fiduciary duties by failing to take action on diversity issues. Similarly, companies all around the world experience similar 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 California wildfires,” Joana Moniz, global head of commercial financial lines at AGCS said.

Also, Climate-change-driven litigation and activism has increased over time with cases targeting major carbon-emitting industries filed in more than 30 countries. Although, publicly listed companies are generally more exposed to D&O risks, the outbreak of covid-19 has increased the chances of private companies being at risk, the report noted.

“Generally, D&Os of privately held companies are more closely involved in all of the company’s operational topics and business decisions,” Moniz said. “This can more easily translate into being held personally liable through different forms of litigation,” AGCS reported stated.