Demand for Directors’ and Officers’ (D&O) liability insurance is on the rise in Asia as company directors and executives across the region become more aware of their potential personal-liability exposures.


With the days of Asia’s relatively benign litigation culture fast disappearing and directors and officers being faced with increased regulatory challenges, D&O policies have never been so popular. They’re becoming more complex, too, to deal with the growing threat of legal action by employees, shareholders and regulatory authorities, as well as possible civil, criminal or alternative-dispute proceedings.

According to Stella Tse, the financial and professional risks practice leader at leading insurance broking and risk management firm Marsh, a major liability trend in Asia is increasing employee-led litigation. Shifting social attitudes and evolving workplace laws across the region have contributed to more employees possessing a heightened awareness of their legal rights and a greater willingness to assert them.

Then there’s the rise in corporate-corruption cases being brought against executives under the US Foreign Corruption Practices Act, the UK Bribery Act and other local regulations.

In a Marsh report on the personal risks faced by company directors in Asia, the company’s South-East Asia chairman Alan Cheah points out that regulators around the world are working together to implement regulations that reach beyond national borders. “With increased pressure at all levels, company directors and executives across Asia are finding themselves being more personally exposed than ever before,” he writes.

Regulatory risks

Ali Chaudhry, managing director of Professional & Executive Risks Asia at Jardine Lloyd Thompson (JLT), agrees that the top risks in the region are regulatory. “For example, the regulators in Hong Kong, the SFC [Securities & Futures Commission of Hong Kong] in particular, have started being a lot more aggressive than they were with the level of investigations and pursuing people,” he says.

Head of Regional D&O Liability at AIG Asia Pacific, Jason Kelly, says that there has been a steady increase in regulatory actions against individual directors and officers in Asia. “Post the global financial crisis, regulators across Asia are more vigilant, adding more resources towards enforcement of securities laws and regulations, and pushing for ever stronger levels of transparency in listed companies,” he says.

With the increase in mergers and acquisitions activities in recent years, there has been a tangible increase in demand for compliance with overseas regulatory requirements. Development director of the Asian unit of Lockton’s Global Technology and Privacy Practice, Angel Kuan, believes that this been driven by a changing post-GFC corporate environment. “Regulators are taking a far greater interest in commercial activities,” Kuan says.

Kelly recalls a surge in demand in Hong Kong in 2012 after the HKeX added to its code provisions that all Hong Kong-listed companies should procure D&O insurance as a matter of good corporate governance. “The increase in securities litigation against US-listed Chinese companies also produced a surge in demand in China,” he says.

Greater transparency

Ralph Sherbahn, XL Group’s professional lines manager in Asia, says that as a result of all the investor claims the insurance industry has seen against management in Asian companies, these organisations have now realised the need for greater transparency in their dealings with investors, as well as for robust internal compliance policies and procedures.

“All of this coupled with the increasing levels of regulatory oversight globally, including in Asia, highlights the importance of sound corporate governance and the required focus of company managers in this area,” says Sherbahn.

Indeed, there is growing investor expectation that the same minimum standards of corporate governance should apply, no matter whether a company is based in Asia, Europe or the US. Kelly says that it’s now the age of the truly global investor. “The continued development of investment opportunities across borders will deepen the pool of money moving from one country or continent to another,” he says. “As an example, investors in Europe will expect a listed company in Asia that they are invested in to maintain an equivalent level of corporate governance standards with European companies.”

Chaudhry says that his clients are taking a much greater interest in corporate governance. “10 or 15 years ago, corporate governance was never really mentioned, but now it’s in everyone’s annual report,” he says.

Products on a par

So, how well is the insurance industry reacting to this changing landscape? Chaudhry says that the D&O coverage that can be obtained in Asia is on a par with anything being offered in other regions. “The products that are launched here are as sophisticated as they are anywhere,” he says. “In some ways it’s even broader than you can get in Europe.”

Kuan argues that the D&O policy forms offered in Singapore and Hong Kong are now some of the most comprehensive in the world. She adds that there is plenty of capacity in Asia thanks to the influx of the Lloyd’s syndicates in recent years, albeit in a highly commoditised market. “The policy limits purchased in this part of the world are much lower as compared to the US/EU companies due to Asia’s benign legal environment,” she says. “There is also a trend towards bundled policies rather than standalone side A, B and C covers.”

Kelly says there has been a slow uptake in the limits purchased and estimates that most companies in Asia would carry somewhere between US$5m and US$25m. Chaudhry points out that just a decade ago, placing US$100m in Asia D&O capacity “would have been a struggle”. “Now you can quite easily do north of US$300m on a fairly standard big risk,” he says. “So, you have probably got a threefold increase in dollar capacity that you can get from insurers.”

Variable pricing

But what about price? Kelly points out that pricing varies according to the type of listing exposures that organisations have. “For example, companies listed in Taiwan will find the pricing more firm and even increasing based on local Taiwanese litigation trends (which include class actions) versus a company listed in Hong Kong where class actions are not yet present.”

In general, Chaudhry says, prices have been coming down for some time. “I think D&O is one product that is fairly easy to sell,” he says. “If it’s keenly priced and directors are hearing more about it, they’ll probably spend the money on that more easily than other areas. We’re all a bit selfish, I suppose.”

Kelly says he is seeing a steady increase in requests for cover across the Asia-Pacific region and that he expects this trend to continue for the foreseeable future.

Kuan notes that many directors are requesting a D&O policy as a prerequisite before they accept a position. “This demand is being driven by increased scrutiny from regulators to ensure compliance,” she says. “As it is still a highly active market with numerous on-going acquisition opportunities, there is an on-going need for senior executives, and their boards, to mitigate personal and company risk.”

Claims experience

The claims experience of a D&O carrier is key to effectively dealing with claims as they arise, Sherbahn notes, whether it be in Asia, the US, Europe or elsewhere. “Accordingly, on a global basis, risk managers focus on carriers with established product expertise and, importantly of course, claims expertise concerning specific legal exposures faced by their directors,” he says.

Chaudhry points out that risk managers need to consider several factors to effectively manage executive liability. “They have to make sure that they have decent products, and hey have to have some benchmarking and advice to make sure that they are within their peer group, both in terms of coverage and the limits they’re buying,” he says.

Certainly, the best results are being seen when brokers and clients work with experienced carriers that are capable of developing long-term relationships based upon their expertise in a given insurance line.

Furthermore, the insurer, broker and buyer all have a role to play in ensuring that they are meeting local requirements and there are no gaps in D&O cover.

“Good risk managers understand the importance of developing a D&O program adapted to the specific exposures of their company directors,” Sherbahn says.