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The Coronavirus Pandemic (COVID-19) has affected companies of all sizes across every industry. As management teams focus on business-critical decisions to help ensure the survival of their businesses, insurance can be an area that is sometimes overlooked.

In this article we will be looking at key aspects of insurance that should be foremost in management minds as businesses position themselves, we examine the current state of the market for Directors’ & Officers’ insurance (D&O).

Critical business decisions, taken in good faith now, will need to stand up to scrutiny in the future. Disruption to businesses, contingency and continuity plans will be under focus for months or even years to come.

Employees, customers, suppliers, creditors, investors and other stakeholders all face an uncertain future. Many companies fear bankruptcy whilst others are, naturally, deeply concerned about the impact of the crisis on their operating results. All these factors have the potential to lead to claims. In the U.S., there have already been two securities class actions arising from COVID-19; Norwegian Cruise Lines and Inovio Pharmaceuticals.

Law suits arising from how directors have handled the crisis could include:

  • Losses suffered by investors: Company disclosures will be closely scrutinised. Investors may allege that disclosures were misleading or inadequate or that any shortfall in performance was the result of inadequate crisis management and business continuity arrangements.
  • Regulators: The duty of care owed by an employer to its employees is unaffected by the current crisis which could lead to claims for breaches of employment laws and health and safety regulations. Regulators in the financial services sector, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), have an expectation that businesses have in place contingency plans that are effective and proportionate.
  • Cyber Risks: Home working and the way in which businesses are run can create enhanced data/cyber exposures as previously established control procedures are ultimately proven to have been inadequate to meet the challenges of the current circumstances. Where data breaches or losses occur, directors may be held responsible.

Market Overview

Insurers have reduced their appetite for new business and capacity within the market has also fallen meaning that it is now taking longer to place coverage (assuming it is available). On existing business, there is a renewed emphasis on underwriting information, similar to that which was seen in the last economic crisis, particularly in relation to how a business has assessed the COVID-19 risks it faces.

The travel and leisure sector has been an early casualty of this enhanced underwriting process – which has also seen authority for decision-taking moved away from individuals and instead moving to insurers’ global senior management – and increased scrutiny has now spread into other sectors, including retail, finance and gambling. Ultimately, it is likely that no sector will remain entirely unaffected.

Coverage is becoming more restricted, increased excesses are becoming more common, particularly for companies with U.S. exposures, and available cover limits are falling. Our specialists are seeing clients’ renewals across UK public, private and U.S. traded firms of all sizes, where cover such as Employment Practices Liability, or even, in some cases, Corporate Legal Liability coverage are being declined.

Ahead of the current crisis, rates in the market were already rising significantly however, they have now gone into overdrive with premium increases of anything up to 1000% Professional Indemnity (PI), Cyber and Construction are other areas which are seeing comparable increases.

Insurance Renewal strategy

Given the current position, the focus needs to be on obtaining as much limit as is practical and working to ensure that all the available options are considered.

Proving the viability of your business and demonstrating a high level of corporate governance and risk management will be fundamental to the renewal process.

Furthermore, do not risk starting your renewal process too late, a three or four-month lead time is highly advised.

Please contact your Auditel Consultant for more information on how we can assist you in this vital area.