Tag Archives: D&O

Cybersecurity Governance Moves Up Boardroom Agenda

A poll of board directors and executives from Forbes Global 2000 companies finds that cybersecurity is being taken much more seriously in the boardroom these days, as is cyber insurance.

Nearly two-thirds (63 percent) of respondents to the study developed by the Georgia Tech Information Security Center (GTISC) say they are actively addressing computer and information security, up from 33 percent in 2012.

There has also been a significant shift in the number of boards reviewing cyber insurance. Nearly half (48 percent) of respondent boards were reviewing their company’s insurance for cyber-related risks, compared with just 28 percent in 2012.

However, the 2015 survey suggests there may be confusion over what type of insurance to purchase or appropriate coverage limits. Only about half of the respondents (47-54 percent) indicated that they had quantified their business interruption and loss exposure from cyber events.

Almost all boards (90 percent) are reviewing risk assessments, and an increasing number of them (53 percent) are hiring outside experts to assist on risk issues. Interestingly, the highest degree of attention was being paid to cyber risks associated with supplier relationships.

The survey, which was supported by Forbes, the Financial Services Roundtable (FSR), and Palo Alto Networks, found that some of the biggest improvements over time have been organizational.

For example, the majority of boards (53 percent) have established a risk committee, separate from the audit committee, with responsibility for oversight of cyber risk. In 2008, just 8 percent of boards had this in place.

The financial sector far exceeds other industry sectors with 86 percent having a board risk committee separate from the audit committee, followed by the IT/Telecom sector at 43 percent.

Another positive sign? Boards are now placing much more importance on risk and security experience when recruiting board directors, with 59 percent saying their board had a director with risk expertise, and nearly one quarter (23 percent) one with cybersecurity expertise.

Something to bear in mind: the response rate to the 2015 survey was low — with results received from just 6 percent, or 121 respondents at the board or senior executive level at 1,927 Forbes Global 2000 companies.

Marsh: Health Care D&O Risks Rise As Reform Takes Effect

Health care organizations are facing a much more challenging directors and officers (D&O) liability insurance market as they adapt to changes arising from the Affordable Care Act (ACA), according to a new report from Marsh.

It reveals that average primary D&O rates for midsize and large health systems increased by 9.6 percent in the third quarter of 2013, while total program D&O rates renewed with 7.9 percent increases on average.

Nearly all organizations – 91 percent – renewed with rate increases, according to its findings.

Marsh notes that since the passage of the ACA in 2010, the health care industry has undergone rapid consolidation resulting in organizations working more closely together and sharing information.

As a result, many health care organizations face increased exposure to antitrust risks and this has insurers concerned.

In some cases D&O insurers have lowered their antitrust sublimits and increased antitrust-related coinsurance requirements and retentions, Marsh says. In addition to raising rates, some D&O insurers are also pulling back on offering full policy limit defense coverage.

It quotes Mark Karlson, Marsh’s FINPRO Health Care Practice Leader:

Ongoing merger and acquisition activity and the transition to accountable care organizations and similar networks are creating new exposures for many health care organizations, including antitrust risks.

This has resulted in a much more challenging D&O market for health care companies. Risk managers should expect to face additional rate increases in 2014 and be prepared to provide underwriters with detailed answers about their response to health care reform.”

PC360 has more on this story.

Check out I.I.I.  information on  D&O liability insurance.

Towers Watson: D&O Marketplace Firming

The directors and officers liability insurance market is firming, with increased pricing being experienced in many sectors, according to an annual survey conducted by Towers Watson.

Towers Watson’s 2012 Directors and Officers Liability (D&O) Survey found that 41 percent of respondents in the private/not-for-profit space, and nearly 30 percent of public companies indicated that their premiums had increased in 2012.

In a press release Larry Racioppo, vice president, executive liability group, Towers Watson, and author of the survey, says:

Increasing claim activity, including D&O and employment litigation, coupled with inadequate pricing and retentions in the private and nonprofit space, are all driving insurers’ need for pricing increases.†

In 2012, directors and officers were more likely to ask about the amount and scope of their D&O coverage than last year, perhaps due to concern over the litigious environment, Towers Watson said.

This was particularly true of private companies, where 70 percent of respondents reported receiving an inquiry as to the amount and scope of their D&O coverage, up from 58 percent in 2011.

Regulatory actions continued to be a significant source of concern among directors and officers in 2012, with 83 percent ranking it as a top three concern.

In fact the biggest jump in directors and officers liability insurance claims in 2012 was brought about by regulatory actions, increasing to 23% of responses from 19% in 2011 and 16% in 2010.

Towers Watson noted the increased concern over regulatory litigation may reflect new laws put in place since the financial crisis, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as an increase in whistleblower bounties.

Check out I.I.I. facts+stats on D&O liability insurance here.

Libor Scandal, Litigation and Insurance

The ongoing revelations surrounding the manipulation of interest rates by big banks during the financial crisis  are making headlines around the world.

On Saturday the New York Times reported that fallout from the scandal is prompting greater scrutiny of bank regulators, amid questions over whether they allowed banks to report false rates before and during the 2008 financial crisis.

For an understanding of the potential risk costs to banks involved in the scandal, a recent post on the Financial Times Alphaville blog covers the latest estimate of Libor risk from Morgan Stanley, including litigation risk.

And what about the implications for insurers?

Over at the D&O Diary, Kevin LaCroix has been keeping readers updated on possible implications of the Libor scandal in the world of directors’ and officers’ liability.

In a July 13 post about the filing of the first securities class action lawsuit by a Barclays shareholder, LaCroix noted that the Libor scandal shows that the financial institutions arena remains a risky neighborhood.

In another post earlier in the week, LaCroix said that it remains to be seen what the fallout from the scandal means from an insurance perspective:

The ultimate consequences for the companies involved and their insurers will only emerge over the coming months and years as this scandal continues to unfold. It does seem likely that the related civil litigation will continue to accumulate. To the extent additional derivative claims are filed, or if shareholders of target banks file securities claims, the follow-on civil litigation could develop into a significant event for the D&O insurance industry. At this point, the one thing that is clear is that it will pay to watch closely as the investigation unfolds and the follow-on civil litigation continues to emerge.†

Check out information from the I.I.I. on specialty risks.

U.S.-Listed Chinese Companies and Securities Litigation Risk

The Financial Times reports that the value of Chinese companies delisting from U.S. exchanges in 2011 exceeded the amount Chinese companies raised via initial public offerings in the U.S. amid fraud allegations and slowing growth.

There is an  interesting insurance angle behind this story.

Over at the D&O Diary, the tale of U.S.-listed Chinese companies hit with class action securities litigation made it to number two on the blog’s top ten D&O stories of 2011.

Kevin LaCroix writes:

Every year there seems to be one group or sector of companies that draws the unwanted attention of plaintiffs’ securities attorneys. During 2011, the hot sector was U.S.-listed Chinese companies.†

He goes on:

There were 39 different U.S.-listed Chinese companies hit with securities class action lawsuits during 2011, representing nearly one-fifth of all securities class action lawsuit filings during the year. Since January 1, 2010, there have been securities class action lawsuits filed against 49 different Chinese companies.†

D&O Diary says that the surge of litigation involving Chinese companies has arisen out of accounting scandals. It makes the point that not all of these cases are meritorious and indeed some have been dismissed:

Eventually the plaintiffs’ lawyers will simply run out of Chinese companies to sue, but for now the phenomenon shows no sign of letting up.†

According to recent commentary from Lockton, Chinese companies are named in nearly 25 percent of the securities class action suits filed so far in 2011, despite making up less than one percent of the total number of publicly traded companies in the U.S.:

The reasons for this, and the steps companies and their directors and officers must take to protect themselves, must be understood by companies that wish to avoid becoming part of this statistic.†

Lockton advises that a robust D&O insurance program is essential to transfer the financial risks that securities litigation and investigations create. However, it is also critical for companies to understand the terms of their D&OÂ  policies and anticipate insurers’ coverage positions:

The reality of being a public company in the U.S. is that a company faces the prospect of distracting and very expensive securities investigations and litigation. The risks associated with that can and must be managed well. The consequences of a failure to do so can be ruinous.†

D&O insurance protects the directors and officers of an organization against losses in case they are sued for their actions overseeing the organization.