A quarter of claims related to bankruptcy
Since the financial crisis, we have seen an increase in the level of claims activity involving directors and officers (D&O) and it is important for all companies to understand that this may affect them.
To get a better perspective of what was happening we undertook a review of our large loss activity, particularly with respect to D&O claims. Given that we deal with such a large volume of claims, we have a unique overview of claims activity in the market.
To do this we reviewed more than 300 D&O claims from across the UK/Europe on which we had significant reserve activity, from September 2008 to March 2016.
We found that:
• Not surprisingly, almost 25% of those claims were bankruptcy related.
• Almost 17% of the claims were insured v insured claims, in which the policyholder sues directors for wrongdoing that has negatively affected the company.
• Almost 15% of the claims were criminal investigations/proceedings.
• Almost 15% were related to regulatory investigations, an area in which we have seen increased activity.
The regulatory number may actually be significantly higher, since we often see regulatory activity in addition to other types of claims activity. For example, the SEC investigates at the same time that shareholders bring investor actions. Since the financial crisis, we have seen increased activity by regulators against directors and officers, perhaps in an effort to ensure better corporate governance and to ensure that we do not have a repeat.
In addition, regulators such as the Department of Justice and the FCA have publicly stated their intention to hold individuals to account.
We also considered loss location of claims and were interested to note that 33% of the claims we looked at had a loss location – the place where the claim was brought – somewhere other than the country where the policy was issued. This highlights the globalisation of the market we operate in and also the increased exposure for directors where their organisations transact business in multiple locations.
Finally, although many people believe D&O claims activity in the UK/Europe is a public company phenomenon, we are also seeing private and non-profit companies face high-value D&O claims, suggesting that all directors, regardless of the nature of the business they work in, face significant exposure from claims and need the support of an experienced insurer to assist them in this challenging market.