Brought to you by:

More pain in store for D&O players

Facebook Twitter LinkedIn Google

So-called “bad news” not linked to financial results will trigger more claims in the directors’ and officers’ (D&O) space, further straining what is already a loss-making line for insurers, according to Allianz Global Corporate & Specialty (AGCS).

“Scenarios include product problems, man-made disasters, environmental disasters, corruption and cyber-attacks,” AGCS says in a report.

“These types of “event-driven litigation” cases often result in significant securities or derivative claims from shareholders after the bad news causes a share price fall or a regulatory investigation.”

Cyber-related claims are increasingly a trigger for class actions, particularly in the US, the report says. In these legal actions, shareholders often allege management failed to disclose the business’s exposure to potential breaches and the lack of planning to deter hackers.

The impact of climate change, bankruptcies as well as the political and economic climate are the other factors that could also further trouble D&O insurers.

On climate change, AGCS says a failure to keep investors updated on potential financial implications linked to global warming could result in legal action.

“Climate change cases have already been brought in at least 28 countries around the world to date with three-quarters of those cases filed in the US,” AGCS says.

“There are an increasing number of cases alleging that companies have failed to adjust business practices in line with changing climate conditions. Environmental, social and governance failings can cause brand values to plummet.”

The global D&O market generated about $US15 billion ($22 billion) in premium annually but the growing number of lawsuits and deteriorating claims environment have made the line unprofitable.