- Growing trend to seek personal legal action against executives
- Top cause of D&O loss is non-compliance with laws and regulations. Average claim for breach of trust and care globally is $1m+
- M&A activity remains key driver of D&O claims
- Emerging perils include cyber and data privacy as well as reputational risks such as climate change impact
D&O Insurance Insights: Management Liability Today examines the managerial tightrope directors and officers face as executive liability increases. There is a growing trend toward seeking punitive and personal legal action against executives for failure to follow regulations and standards, which could result in costly investigations, criminal prosecutions or civil litigation.
“While the legal landscape differs 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,” says
D&O litigation – lengthier and more costly
According to AGCS analysis, non-compliance with laws and regulations is now the top cause of D&O claims1, followed by negligence and maladministration/lack of controls. The average D&O claim globally for breach of duty costs over
AGCS observes a general trend for D&O claims to be dismissed or resolved more slowly, meaning lengthier litigation, increased defense costs and higher settlement expectations. For example, an average
The risk of being targeted in a securities class action remains a core concern for directors and officers in the
With globalization, executive liability exposures are becoming more complex and interconnected. Many large claims involve regulatory investigations and civil litigation in multiple jurisdictions. “International companies are being sued in the
Cyber risks on the board agenda
The landscape for executives is further complicated by a number of emerging perils such as liability around cyber-attacks and data privacy. In the
“Many directors used to see cyber as an IT issue and not an exposure for the board to consider,” explains
Other new management risks include negative disclosures or allegations around environmental pollution, climate change and modern slavery, which could result in reputational risks and shareholder activism, public outcry or governmental action.
Mergers and acquisitions (M&A) continue to be a key driver of D&O litigation and is predicted to continue at a rapid pace in the future. “M&A, but also divestitures, belong to the riskier moments in the life of a company,” says Poncin. “Expectations are always high, and synergies are easier planned than realized.”
Highly sophisticated risk management required
In order to tackle the increase in executive risk, directors need to develop a highly sophisticated risk management culture. Examples include instilling first-class cyber and IT protection, keeping records of all information relevant to a managerial role and maintaining open communication with authorities, investors and employees.
Executives should ask tough questions about compliance topics such as sanctions, embargoes, domicile registrations, price-fixing and fraud as well as “classic” D&O exposures such as M&A, capital measures and IPOs. D&O Insurance Insights: Management Liability Today contains best practice advice and checklists outlining how executives can mitigate these risks.
Worldwide, AGCS operates in 30 countries with own units and in more than 160 countries through the
AGCS SE is rated AA by Standard & Poor’s and A+ by
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1 AGCS analysed 576 claims between 2011 and 2016