Posted in News on 23 Mar 2020
In a world that is becoming increasingly litigious, claims are not necessarily exclusive to large or listed firms. The market has slowly come to this realisation - with insurers changing their underwriting strategy accordingly. As a result, insurers in the Directors’ and Officers’ (D&O) market will in the future have to focus on securing larger, more diverse books of business in order to help protect themselves against claims in a specific sector.
Over the last few years, it has become evident that certain industries and sectors have been hit harder than others by this new level of underwriter scrutiny and selectivity. In terms of percentage rises on rate, we have seen non-listed US companies being impacted more than US listed companies - even though it is usually US classes that experience the larger, more substantial losses. The key factor is the premium base. A US listed firm which paid USD1m in premium last year is likely to now be paying around USD1.5m; however American firms which are not publicly listed are often seeing much higher percentage increases. This is due to global litigation increasing outside the USA. These days it is close to impossible for insurers to write business on a zero claim basis.
D&O exposures are increasing as companies grow in size and international reach, and the environment in which directors operate has become more unpredictable. The power sector – long in the spotlight for regulators and politicians alike - has been forced to respond with increasingly innovative ways of generating and distributing its output as the sector’s risk environment changes. The environmental impact of many of the traditional methods of power generation have never been so intensely scrutinised, and the pace at which social outcry gathers momentum through social media channels leaves regulators and governmental bodies with little to no choice but to take action, often against the directors themselves.
One risk that has been ongoing in the energy industry is regulation and public policy. The US Department of Energy  has some of the broadest responsibilities in regulatory power generation and electricity transmission, distribution and retailing across the global market. This has resulted in the legal bodies responsible for overseeing gas, coal, nuclear, electric, petrol and the energy sector, need to be fully aware of how local, state and federal jurisdictions are changing so that they can help their members abide by the law. While these exposures continue to increase more progressively, so will the frequency and severity of Management Liability / D&O claims.
For example in early 2019, while faced with potentially damaging lawsuits over California’s wildfires, Pacific Gas & Electric Corp (PG&E) filed for bankruptcy protection. Numerous questions were raised as to whether a utility line might have sparked a major fire in Sonoma County. Some lawsuits were filed on behalf of people whose loved ones were killed, with others accusing the utility firm of failing to properly maintain equipment. In the absence of a (now bankrupt) employer to rely on to indemnify them, directors and officers turned to their insurers to step in and fund costly litigation, demonstrating the importance of a comprehensive, well-structured programme of insurance is carried.
This method of personal asset protection for the individual directors (often referred to as “Side A” insurance) can be particularly important; these dedicated towers of cover can respond when the corporate D&O policy can’t, or will not, respond – and this is a scenario that is becoming increasingly commonplace. For more information on Side A cover, please speak to your usual Alesco account executive.
FOR MORE INFORMATION, PLEASE CONTACT
Matthew Savitt | Partner
Alesco is a specialist insurance and risk management business located in the heart of the City of London. Founded in 2008 by a team of experienced professionals, we provide a wide range of risk-management services and insurance solutions which are fundamental for protecting organisations. We work closely with underwriters in the London markets, in key global insurance centres, and with local broking partners in 150 countries.