Directors & Officers
There continues to be plentiful capacity within the Directors’ & Officers’ (D&O) market. New insurers continue to enter the space, without the burden of legacy claims, putting downward pressure on rates. Nevertheless, insurers’ risk appetite in the sector varies, depending on several factors, including an organisations ESG disclosures.
Insurers study ESG disclosures carefully, test organisations delivery plans for their commitments, and scrutinise the boards disclosures and communications. If targets are not met, it could trigger an expensive lawsuit from stakeholders and / or activists. With ESG-related D&O claims still on the rise, companies should ensure underwriters fully understand their activities. Listed companies are in the spotlight, as their ESG disclosures are usually mandatory (depending on the jurisdiction) with boards held accountable for public statements and disclosures. This attracts scrutiny from shareholders, analysts, and regulators as well as D&O insurers.
To assess ESG-related risks, insurers use sector benchmarking assessments. These incorporate a combination of publicly available data, alongside questionnaires and data processed by internal analysts, giving a numerical score. This provides an indication on how a company is performing against their peers. D&O insurance buyers should be aware of the monitoring ESG rating agencies conduct and be prepared to comment and / or submit additional information to insurers when needed. Some syndicates focus solely on ESG-positive risks with particularly high standards and a clean track-record in areas such as health and safety and pollution. A good ESG score may secure additional capacity.
Tailings risks have historically been the main cause of D&O claims and are subject to increased insurer scrutiny. There have been several catastrophic failures in recent years relating to TSFs, and insurers now ask for greater access to risk information. Some insurers seek to impose tailings exclusions, sub-limit cover, or refuse to quote risks with tailings activity. It is critical to follow a globally approved framework and effectively communicate tailings risks. Companies operating TSFs need a strict governance plan in place that ensures effective implementation of the latest published guidance and best practice, as well as detailed documentation of measures to prevent failures. We have found this effective in enabling insurers to remove sub-limits and exclusions.
New for this year is the question of trade tariffs. Insurers are asking companies what their exposure to the financial impact of tariffs and other trade restrictions are.
Some additional considerations that insurers review when assessing risk include:
Mining type: Insurers may set their own ESG standards, potentially excluding certain types of mining – such as thermal coal, for example
Geographical location: Insurers may feel less confident underwriting risks in regions where there is political instability or where operations are at the exploration stage
Stakeholder engagement: Ideally, companies will evidence good, proactive relationships, not only with shareholders, but with other relevant stakeholders, including regulators, governments, and local communities where they operate
Claims record: Insurers will sift through the claims history and look for evidence that risks which triggered a loss event in the past have been appropriately addressed in terms of preventative measures
Listing jurisdiction: For public companies, the exchange on which their shares are listed can affect the risk exposure enormously, particularly where the class-action environment is more developed, such as in the US, Canada or Australia