A CAUTIOUS PATH AHEAD FOR D&O

While new capacity has opened up in the D&O space, fresh challenges and an uncertain fiscal environment require a measured approach.

By MARTIN WANLESS

With many facets of the business world – indeed, society as a whole – it feels as if we’re cautiously stepping forward, wondering what the next thing will be that catches us slightly off guard. It may not be anything that completely blindsides us as COVID-19 did; rather, it could be something that we’re already aware of, albeit within a sea of other challenges.

In relation to Directors and Officers insurance, there are a couple of likely suspects. Cybersecurity is one that’s leapfrogged to the top of most business’s priority lists over the past year or so, and ESG is another.

“ESG springs to mind, but it feels like the conversation around ESG has slightly matured given the increasing level of commentary, scrutiny, and focus it now receives,” says Chris Gough, Head of Property and Casualty, Australia & New Zealand, Chubb Insurance.

“Balancing the need to pay proper attention to ESG with the risk of

‘greenwashing’ is a real challenge for clients at the moment, and therefore for their insurers. Cover in this area will be something to watch in coming years, whether it is enhanced or restricted, and perhaps both, depending on a client’s risk profile.”

Meredith Lieu, Australian D&O Commercial Portfolio Manager, Liberty Specialty Markets, agrees. “ESG is a key focal point at the moment. This applies to all companies to varying degrees and the reporting requirements that go hand in hand with it.

“We have seen ASIC and the ACCC bring investigations – and ASIC’s first court proceeding – against companies for ‘greenwashing’. I think this is just the tip of the iceberg in this space.”

Over at Zurich Australia & New Zealand, Bill Hassos, Head of Financial Lines, confirms this to be the case: “Reporting and monitoring ESG risks, including sustainability and climate pledges, has become a key area of focus.”

THE EVOLVING D&O INSURANCE MARKET

Working our way out of – or alongside – COVID-19 has been a challenge across the sector, and in D&O insurance it’s prompted as many questions as answers, with capacity returning and the inflationary environment creating fresh challenges.

“The last 12 months have been a tale of two halves,” says Lieu.

“The contraction of the D&O market, and the re-emergence of carriers who pulled out of writing Australian domiciled risks, came quicker than expected by both brokers and underwriters, so there is currently more capacity available.

“We have also seen the number of securities class action filings in both Australia and in the USA lower than prior years. However, that is likely to have been artificially suppressed as a result of the global COVID-19 government stimulus packages pumped into the economy to stave off recession/depression and support business and communities.

“We are now seeing the inflationary impacts of that, and rapidly rising interest rates are presenting new challenges.”

Gough confirms that it’s something insurers are keeping a close, close eye on.

“Having emerged on the other side, it’s been challenging trying to predict societal trends in a post-pandemic world, and determining what could impact businesses and their D&O exposures,” he says.

“For example, rates of insolvency, which were lower through the COVID-19 years, are now back up to pre-COVID-19 levels, which has traditionally been a key indicator and cause of D&O losses. Insurers, like brokers and clients, are looking at these developments closely.”

CONSIDERATIONS FOR BROKERS WORKING WITH D&O CLIENTS

When working with clients on D&O, it’s important to secure both the right coverage and the right insurer – working with underwriters who understand the market and are sustainable.

Gough says, “Although the market is a lot more open for clients and brokers now than it has been for the last three to four years, in a long-tail line, this may be temporary.

“Finding an insurer that is in the Australian market for the long term, and able to operate successfully in all conditions, is key. For a complex product like D&O, local claims experience is extremely important. Knowledge and engagement in past claims in this jurisdiction are invaluable when it comes to the challenging nature of D&O matters.”

Lieu says exploring what clients value in their D&O policies is fundamentally important. “What do clients value when selecting carriers for their D&O program?” she asks.

“Are they purely price driven or do they value enduring partnerships and insurer sustainability? Do those clients appreciate the accessibility of a local market when it comes to responding to a claim/investigation and appointing their own legal representation?

“Do clients realise that policies often allow them to appoint their own legal representation, but that doesn’t mean insurers will pay the full cost of those legal fees?”

On a practical level, Hassos says it’s important brokers work closely with clients to ensure the right documentation is given to underwriters. “Brokers should provide well-prepared documentation early, including recently completed and signed proposal forms, the most recent audited financial accounts and full details of most recent claims experience or litigation history.”

Gough says if brokers have questions, so too will underwriters.

“It helps when brokers understand the client’s aims and pressure points for renewal and communicate those to the underwriter. It also assists when brokers underwrite the submission – if the broker has questions after reviewing the submission, it’s likely the underwriter will too. The broker who’s known for providing a complete and concise submission (who comprehensively spells out the requirements and expectations of the client), is going to put that submission in the best position to receive priority.”

BEWARE THE GREENWASHING TRAP!

ESG’s the hottest of hot topics at the moment, and businesses need to tread very carefully when making any environmental claims. Any claim relating to ESG must be factual and evidenced – and regulators are watching extremely closely.

Action against greenwashing is one of ASIC’s 2023 Enforcement Priorities, and as referenced earlier in February this year, ASIC launched its first court action against a company for alleged greenwashing conduct. Mercer Superannuation (Australia) Limited, ASIC alleges, made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

ASIC Deputy Chair Sarah Court said in a statement published on asic. gov.au, “This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct, and it reflects our continuing efforts to ensure sustainability-related claims made by financial institutions are accurate.”

This is a hugely important topic, and one that brokers need to be highlighting with clients, as attention is firmly fixed on identifying greenwashing culprits – and the potential reputational and business fallout is huge.

The difficult made

The difficult made easy

Delivering

Delivering

Delivering differently with a solutions-first approach.

COMMUNITY HUB

Accommodation

Agistment

Animal & Petting Zoo

Breeding & Studs

Carriage Driving

Clinic Organisers

Clinics

Coaching

Dentists

Equine Assisted Learning

Equine Assisted Therapy

Equine Associations

Equine Events

Facility Hire Farriers

Horse Carriage Driving

Horse Trainers

Massage Therapists

Pe

Pony Parties

Pony Rides

Pre-training & Breaking Rehabilitation

Riding Clubs

Riding Schools

Saddle

Key Liability Occupations:

• Alternative & Complementary medicines

• Automotive

• Biotechnology

• Clinical Trials / Research

• Cosmeceuticals / Nutraceuticals

• Defence – machinery, weaponry & protective equipment

• Life Science / Pharmaceuticals

• Medical & Surgical Devices (including invasive implants)

• Medical Equipment / Products

• Medicinal Cannabis

• Mining

• Rail – Products, Maintenance, Locomotive Engineering, operators, Rolling Stocks & Engine Manufacturers

• Universities

• Veterinary Medicines

Key PI Occupations:

• Accountants

• Architects

• Engineers

• Environmental Consultants

• Insurance Brokers / Underwriting Agencies

• Law Firms

• Management Consultants

• Miscellaneous Risks

• Real Estate Agents

• Universities

• Valuers

At Newline Australia, we underwrite: Life Science, Clinical Trials, Public & Products Liability insurance, Professional Indemnity (PI) insurance, Financial Institutions insurance, Directors & Officers insurance and Crime insurance Will Clarke

Key FI Occupations:

• Fund Managers/Investment Managers

• Stock Brokers

• Managed Investment Schemes

• Excess lines for Financial Planners

Key D&O

• Insured firms can be not-for-profit, privately held or publicly traded

• Side A/DIC placements

• Medicinal Cannabis risks

• All industry sectors, both commercial and financial, are underwritten

Key Crime Commercial Crime Insurance is also offered alongside other Financial Lines products

Wellington Underwriting Agencies specialise in labour hire/recruitment, complex liability risks and niche property solutions.

• labour hire companies

• recruitment companies

• group training and registered training organisations

Our Combined General Liability wording has been tailored for complex risks including:

• construction

• manufacturing

• rail

• resource sector; and

• other hard to underwrite risks

Wellington’s Property capabilities are focussed on niche exposures including:

• catastrophe-exposed properties

• mining sector

Contact our Underwriters today or visit our website at www.wellingtonu.com.au

QPIB – A STATEMENT OF PROFESSIONALISM

Apply online at niba.com.au or email NIBA

•

QUALIFIED PRACTISIN G INSURANCE BROKERQPIB