Directors in New Zealand and Australia are facing the most volatile and restrictive liability insurance market in living memory and there are no signs of it improving anytime soon.
A new report by the Institute of Directors (IoD) with Marsh and MinterEllisonRuddWatts, Under Pressure: D&O insurance in a hard market highlights a volatile and restrictive liability insurance market.
“Regionally, D&O claims payments have dwarfed the total insurance premium pool as litigation funders become more commonplace and as New Zealand’s regulatory environment, particularly our class action regime, evolves,” says MinterEllisonRuddWatts partner Andrew Horne, in a media release.
As a result, Marsh chief client officer Steve Walsh says that insurers are increasingly cautious when considering renewals or applications, often requiring greater access to organisations and their boards.
“Premiums and excesses are climbing and some insurers are exiting the market altogether.
“Directors should be ready to play an active role in securing the appropriate liability coverage for themselves and the organisations they represent. This could include meeting with insurers to provide insights into the company and board structure, as well as their own competency and qualifications,” Walsh says.
As directors and entities come under economic and structural pressure amid a more litigious backdrop, D&O insurance is more crucial than ever, says IoD Governance Leadership Centre and membership general manager Felicity Caird.
“Good governance is integral to successful, sustainable organisations. Strong directors leverage their experience and professional instincts to move an organisation forward; it requires focus and often courage. This is difficult if they’re constantly looking over their shoulder, worrying about personal liability,” Caird says.
She adds that it’s not just an issue for listed or private companies. Not-for-profits are particularly vulnerable, with many already facing financial challenges as fund-raising opportunities shrink amid Covid restrictions,” she says.
Walsh notes that New Zealand insurers have so far been relatively sympathetic to the NFP sector when it comes to renewals and premiums.
“But it’s certainly been tougher in other jurisdictions, so the local industry could well change tack. It’s important that all organisations strike the right balance between the rising costs of insurance and the appropriate level and mix of protection,” he says.
Horne confirms that liability risks differ across industries and organisational complexity, so entities need to understand exactly what a specific D&O insurance policy offers.
“Some key issues directors should be looking for are; whether coverage includes investigation costs, separate defence costs, and adequate cover for individual representation, as well as whether it excludes insolvency-related claims or cover for capital raising or claims by majority shareholders.”
Under Pressure: D&O insurance in a hard market is available on www.iod.org.nz