New risks have increased the chances of corporate leaders being hit by investigations, fines or prosecutions, according to Allianz Global Corporate & Specialty (AGCS).

Cyber incidents, data privacy, rising regulator and shareholder activism and the influence of third-party litigation funders mean directors and officers are now “walking a managerial tightrope as executive liability continues to increase annually”.

An AGCS report on directors’ and officers’ (D&O) insurance warns there is a growing trend towards personal and punitive legal action against executives.

“While the legal landscape differs strongly from country to country, increasing shareholder or regulatory action has become a global phenomenon that needs to be given top priority within companies’ internal risk management departments,” Global Head of Financial Lines Bernard Poncin says.

According to AGCS analysis, non-compliance with laws and regulations is now the top cause of D&O claims, followed by negligence and maladministration or lack of controls.

The average D&O claim for breach of duty costs more than $US1 million ($1.34 million).

However, in large corporate liability cases D&O claims can reach hundreds of millions of dollars.

“AGCS observes a general trend for D&O claims to be dismissed or resolved more slowly, meaning lengthier litigation, increased defence costs and higher settlement expectations.”

In the US the number of securities class actions continues to rise, with Australia – and more recently Germany – following close behind.

“The biggest exposures, and source of D&O claims, are in the US and Australia,” the report says. “Germany is another market where executive liability has increased.”

The report warns increased activity from the Australian Securities and Investments Commission (ASIC) “seems likely” after additional resources were announced earlier this year.

“Recently ASIC has shown an increased inclination to seek criminal penalties against directors, pursuing at least two for allegedly misleading the market in announcements issued to the securities exchange.

“Directors should also be aware of the rise in pre-inquiry and inquiry costs; regulators are using their information-gathering powers more broadly and becoming more proactive across industries. The costs of complying with regulatory demands can be substantial.

“ASIC is also looking to recover its investigation costs in future, increasing the potential exposure of directors and officers. More broadly, the downturn in the Australian economy may give rise to an increase in investor discontent and claims against directors.”