UK company directors face increased individual accountability

The UK Directors & Officers (D&O) insurance market has seen a lot of change over the last few years. A rise in class actions against companies, more stringent regulation and greater levels of individual senior executive responsibility have created a more volatile market and resulted in price increases.

Almost £500m of fines were given to UK companies during 2021, according to the law firm BLM. Four major UK regulators handed out fines, including the Serious Fraud Office, Financial Conduct Authority, and the Information Commissioner’s Office. Over £60m of these fines were given to SMEs, a dramatic increase compared to £120m between 2016-2020. The increased volume of fines reflects the changing D&O landscape and emphasises the importance of D&O insurance for businesses of all sizes.

A changing landscape   

While globalisation brings substantial growth opportunities, the worldwide interconnectedness of businesses also brings additional risks for UK-based companies, particularly from more litigious jurisdictions such as the US. The growth of class actions which were traditionally an American phenomenon means that insurers are now assessing UK companies based on global claims trends rather than just the UK. This change has resulted in several years of dramatic insurance rate increases, but thankfully, D&O premiums finally appear to be stabilising. Good news for business leaders facing an increased risk of claims against directors and officers during challenging economic conditions.  

Dean Calaz, Managing Director, Corporate, said:

“Individual directors are in the firing line in an investigation. D&O insurance relieves the economic pressure of individual defence costs, allowing directors to focus on defending themselves.” 

Planning insurance renewals in advance  

As insurers’ appetite for D&O risk adapts to meet more demanding market conditions, businesses can take several steps to secure the most wide-ranging, cost-effective protection:  

• Talk to a broker about D&O insurance as early as possible to ensure they fully understand business needs and risks. This process will also enable brokers to present accurate information to insurers and get the appropriate cover at the best price.  
• Providing evidence of scenario planning and testing will give an insurer a better understanding of the robustness of an organisation’s strategic and financial strength and how Covid has impacted their business.   

• Insurers like to see evidence of stress tests for problems such as financial difficulties and rigorous financial reporting and supply chain management.   
• Forward-looking risk management processes that are designed to cope with broader D&O exposures.   
• A focused Environmental, Social, and Governance (ESG) strategy. A future-proofed ESG strategy is vital for all businesses and a growing concern for D&O insurers. Insurers are looking for companies to be as prepared as possible.

Calaz continues:

“Traditionally, D&O was viewed as a large corporate risk, but the changing legal and regulatory environment means it’s valuable to any company’s corporate governance or risk management strategies. The rise of individual director liability has made D&O insurance more important than ever.”  

The need for D&O insurance has never been greater. Businesses face an unprecedented range of complex risks from climate change concerns, unexpected geopolitical tensions, cybercrime and technology disruption, societal threats, and changing consumer behaviour to competition. When companies fail to deliver results, the actions and decisions of directors come under scrutiny, and issues such as insolvencies have seen directors aggressively pursued by regulators, administrators, and creditors seeking to recoup losses.  

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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.

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Categories: Directors & Officers (D&O),