New regulation and investor pressures among top concerns for global directors

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Directors’ and officers’ (D&O) insurance claims are expected to rise in Asia as regulation tightens and shareholder scrutiny rises.

This is the warning of JLT financial lines group managing director Ali Chaudry.

Commenting on the results of the broker’s annual survey about D&O liability, Chaudry said directors’ greatest concerns were now equally split between shareholder and investor claims, and regulatory claims.

“Four years ago, 21% of respondents were worried about regulatory claims, now that’s up to 35%, which is equal to shareholder and investor claims.”

But the perceived regulatory risk doesn’t match the reality.

“Shareholder and investor claims account for about 32%-35% [of all D&O claims]; but the actual level of regulatory claims is still fairly low – it’s around 15% - so it’s interesting that the perception is higher than the reality for regulatory for the moment, but it is coming,” Chaudry said.

“In Hong Kong, for example, the regulator is very active and starting to become quite aggressive. There’s some quite interesting claims going on and some of them are potentially groundbreaking.

“There’s also talk of regulators elsewhere ramping up, in Thailand and Taiwan as an example.”

Minter Ellison head of insurance and corporate risk (Asia) Will Harrison agreed that Asia-Pacific is becoming a more “highly regulated, highly enforced business environment”.

“The sources of the developments are varied and complex – from new laws and regulations, more intrusive regulatory enforcement, investor pressures, international organisations such as the IMF and corporate governance associations and organisations,” he said.

“The most significant recent change in Hong Kong has been the amendments to the Companies Ordinance (a statute that was based upon the UK Companies Act 1948). These made numerous changes to the Ordinance, including codifying for the first time a director’s common law duty of care and skill.”

In Malaysia, the new Companies Bill is also expected to affect D&O claims.

“Malaysia is also reported to be considering amendments to the Malaysian Corruption Commission Act 2009 to enable companies and their directors to become liable in certain circumstances for corrupt acts of their employees,” Harrison said.

While in Japan, the Financial Services Authority has brought into effect its first corporate governance code for listed companies, which covers various matters including equal treatment for shareholders, transparency of information and board responsibilities and board structures.

D&O premiums

It’s not all bad news for D&O, however.

The JLT survey found that 43% of all companies experienced a decrease in their D&O premiums over the past 12 months.

“In terms of pricing we saw some volatility in prices in the US but Asia’s been fairly soft for the last few years and continues to be so,” Chaudry said.

More companies are also expanding their D&O coverage limits, with 24% of public and 17% of private/non-profit companies having purchased an increased policy limit.

Almost one in three companies reported a D&O claim over the past five years.

Of those, 55% were satisfied with how their insurer handled their claim, while 21% were either dissatisfied or very dissatisfied.

Chaudry said this figure highlighted the need for the industry to think more carefully about how it handled claims.

“These are stressful events, they’re never straight forward and they’re involving the individual director so there’s emotion in that,” he said.

“In Asia we haven’t had a lot of D&O claims so I think the insurers and brokers generally don’t have a lot of experience in these things.

“Insurers are under pressure at the moment in terms of handling claims and how they deal with these things. We’ve got a big focus on [claims] and for us it’s sacrosanct: when a claim happens the policies have to respond.”