Current macroeconomic conditions, emerging exposures such as ESG considerations and an uptick in regulatory and criminal investigations will combine to drive up defence costs and settlement values for claims against directors and officers (D&Os).
The claims landscape for executives in the UK continues to evolve at a fast pace. While the D&O insurance market is thankfully showing signs of stabilising after a turbulent couple of years, executives now face a whole host of emerging risks, ranging from cyber/data breaches, rapid digital transformation, post-COVID issues through to environmental, and social and governance (ESG) considerations.
Many of these ESG considerations – including diversity and inclusion, climate change, greenwashing and supply chain monitoring – have led to the imposition of new reporting requirements, as well as heightened expectations around senior executives’ approach to their companies’ overall operational resilience.
Going into 2023, these risks will remain a high priority for senior executives of all companies, with the wrong approach potentially leading to regulatory scrutiny or shareholder actions.
The current macroeconomic conditions are also likely to result in financial resilience being placed firmly back at the top of the business agenda once again. Regrettably, high inflation and increasing prices will no doubt lead to business fatalities. As and when the global recession takes hold, and especially in the case of insolvency, this is likely to lead to an increase in actions being commenced against D&Os by investors, insolvency practitioners, and employees.
There has been a consistent increase in regulatory and criminal investigations into individuals as well as corporates over recent years, which is only likely to continue – especially given the ever-expanding liabilities facing senior executives and an accompanying push to hold management personally accountable for perceived failings.
The convergence of all these factors will drive up defence costs and settlement values, at a time when they are already startlingly high.
It may be time for D&Os to explore how they can best protect themselves, and mitigate against some of these risks, as we enter into this uncertain era. Working with their D&O insurers at an early stage in a potential dispute, to agree on the appointment of panel defence counsel, for example, may help to at least control defence cost inflation.