The COVID-19 pandemic has created a highly volatile and uncertain environment for businesses, resulting in a litany of new or heightened risks for directors and officers (D&O), insurance firm Allianz has warned.
In a report published yesterday, Allianz said that rising insolvency exposures, growing cyber security threats and persistent securities class action are among the key risks for which D&Os could be held liable in 2021.
Companies also need to be on guard against “event-driven litigation”, which can be caused by different triggers such as inaction on diversity, poor sustainability performance, or underestimating or misrepresenting COVID-19-related risks.
This comes at a time when growth in the number of lawsuits, as well as rising claims frequency and severity, has already resulted in a difficult environment for the D&O insurance sector.
Allianz said that underwriting results have been negative in many markets around the world in recent years, including Australia, the UK, US and parts of Europe, and that COVID-19 has compounded the problem.
“Many insurers are still digesting the effect of previous pricing inadequacy and exposure and loss trend increases from prior-year policies,” says Shanil Williams, global head of financial lines at Allianz Global Corporate & Specialty (AGCS).
“This is also at a time of great uncertainty around forward-looking exposure assessments, in particular the impact of COVID-19 on the economy in general and on specific industries.
“Combined with many ‘known unknowns’ like climate change, cyber risks or environmental, social or governance (ESG) factors, this has created a lot of nervousness in this sector.”
Forthcoming insolvency warnings are among the top concerns for the D&O insurance sector as insolvency is a key cause of D&O claims.
According to Euler Hermes, the bulk of insolvencies is still to come through the first half of 2021, with its global insolvency index likely to hit a record high for bankruptcies, up 35% by end of next year.
The top increases are expected in the US, Brazil, China and core European countries such as the UK, Italy, Belgium and France.
“The impact of the gradual phasing out of temporary policy measures designed to support companies is one of the key concerns for 2021,” said David Van den Berghe, global head of financial institutions at AGCS.
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Author: Chris Seekings