Rise in Insolvency Cases
Directors and officers of companies are focused on strengthening the financial situation and liquidity condition of their companies. However, public and private companies in 2022 suffered huge losses and received severe setbacks in their progress. More than 50 per cent of countries in the world recorded high insolvency in the first two quarters of 2022.
The Small and Medium Enterprise (SME) sectors of France, Spain, Belgium, and Switzerland account for 2/3rd of the rise in insolvency and bankruptcy in 2022. In addition, insolvencies are supposed to rise in 2023 by 19% globally. Hence, insurance companies would have a higher risk of settling directors and officer’s insurance policy claims.
Let us discuss the factors which are responsible for the insolvency & bankruptcy of a company.
Energy crises
2022 faced a severe energy crisis globally. The sanction imposed by many countries in 2022 on oil and gas supplies contributed to severe losses to various industries. Further, the Russia and Ukraine war also contributed to the energy crisis in multiple countries.
Stock market volatility
The shareholder incurred losses due to the recession in price. Various legal suits were instituted against the directors of the companies, which were claimed under the director and officer insurance policy.
Cyber risk
Data security and information protection are the core areas which need to be watched by directors. The company's data comprises every information companies hold related to its operation, employee and shareholders. It also includes the future vision of the company. Hence, the protection of a company's data is crucial for the survival of a company.
However, where there is data, there is cyber risk. If the data gets stolen, the IT head could be held responsible. Across the world, the directors have been subpoenaed and called for direct litigations due to the failure to impose appropriate governance on the company's data. Hence, the director and officer insurance policy settled several claims under the cyber risk.
Litigation under Cryptocurrency
In the USA, four lawsuits were filed in 2019, 13 were filed in 2020, 11 in 2021 and 2022 accounted for 11 cases in its first half. It has become another trend of targeting cryptocurrency companies for breaching security laws. The insurance companies have also started settling claims pertaining to cryptocurrency and exchanges under director and officer insurance policies.
Litigation cases in the US market
The firms witnessed various lawsuits against the mergers. The shareholder instituted multiple suits against the directors in order to object the mergers and collaboration of companies. The exposure to litigation is comparatively high in the USA for the companies domiciled and operating businesses in the USA.
However, US filing saw a decline in 2019 and 2022, and is expected to move downward in the upcoming years. Nevertheless, the lawsuits filed in the USA are still high compared to other countries in the world. So, the liability to settle the dispute of the insurer increases under the director and officer insurance policy.
Conclusion
Inflation, and insolvency & bankruptcy are the significant highlights which impacted the directors and officer's insurance. Cyber risks are driving more suits and litigation processes. The USA showed a downward trend, yet it is high in several litigations under directors and officer's insurance. The directors and officer's insurance are favorable policies for buyers in order to recover the claims.
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