Cybersecurity ranked as the top directors and officers (“D&O”) liability concern for organizations, while claims brought by employees, including claims for harassment or discrimination, and regulatory enforcement risks also were identified as critical D&O exposures, according to a Willis Towers Watson survey.
According to the report, the top D&O risks in the coming year included cyber incident/cyber claims (80 percent), claims by employees (55 percent), and regulatory and enforcement risks (48 percent). Meanwhile, concern over investor claims ranked seventh among the top concerns, a finding the report said was “surprising” given the rise in shareholder activism and trends in securities class action filings.
Respondents said D&O premium rates and any insurance program cost changes over the past year were primarily driven by company financial performance (39 percent) and industry risk profile (37 percent). Meanwhile, less than 30 percent of company respondents felt that cost changes were due to insurance market competition, suggesting that market competition in pricing was less of a factor than it had been the last few years.
In evaluating D&O insurance program priorities, a majority of companies (58 percent) ranked obtaining more favorable policy language as the most important change to their program this year. Looking ahead, coverage for investigations (including investigations of the organization itself) ranked as the most important primary coverage issue over the next three years. “Surprisingly,” the report noted, 77 percent of respondents considered entity investigation coverage “important,” although current purchasing habits did not appear to be aligned with that concern.
In reviewing claims experience over the past year, more than half of the respondents (55 percent) said their organization had “experienced” a lawsuit or demand by a current or former employee, but only 34 percent of those submitted claims for those experiences. Overall, the report found a significant portion of unreported claims across a range of experiences, including lawsuits by customers and cyber breaches, noting the “extent of unreported incidents is concerning and could jeopardize coverage due to late notice.”
“It is not surprising to see cyber risk ranked as the top concern,” commented Rob Yellen, executive vice president for D&O and fiduciary liability product leader at Willis Towers Watson's FINEX North America operation. “With today's dynamic threats including unprecedented regulatory complexity, like the new GDPR and the California Data Privacy Protection Act, combined with the potential for a bet-the-company crisis resulting in severe financial and reputational harm, cybersecurity has been elevated to a top risk management issue facing directors and officers today.”
“The survey confirmed that D&O insurance remains an important tool for protecting organizations and their leaders,” said Andy Doherty, executive vice president and thought and product leader at FINEX North America. “Additionally, while containing D&O insurance program costs has always been a high priority, our results reflect that enhancing coverage remains a top priority, too.”