Demand for 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, directors’ and officers’ (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.
Jardine Lloyd Thompson managing director of professional and executive risks Asia Ali Chaudhry 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.
AIG Asia-Pacific head of regional D&O liability 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 has been driven by a changing post-global financial crisis corporate environment. “Regulators are taking a far greater interest in commercial activities,” Kuan says.
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.
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.”
Kelly says there has been a slow uptake in the limits purchased and estimates that most companies in Asia would carry somewhere between $5m and $25m. Chaudhry points out that just a decade ago, placing $100m in Asia D&O capacity “would have been a struggle”. “Now you can quite easily do north of $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.”
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 ongoing acquisition opportunities, there is an ongoing need for senior executives, and their boards, to mitigate personal and company risk.”