Cyber, ESG, and potential recession are some key risk trends for directors & officers in 2023. These risks are driving more lawsuits and litigation processes against the companies and their board of directors. Further, these key trends are the main concern for 2023 as the company, along with its board of directors, might be sued by the investors and stakeholders in the upcoming year.
The economic outlook for various countries needs to be better in 2023. The risk of recession in the economic outlook is rising due to a fall in the growth rate. Inflation is all-time high due to the energy crisis. The ongoing issues of the supply chain are faced by D&O underwriters, which is the main key factor of rising insolvency & bankruptcy.
The D&O underwriters are compelled to focus on the liquidity and financial strength of the company. The uncertainties in the global economy are rising and taking the financial stability of a company towards a downward trend. The US witnessed the filing of 11 lawsuits in the first half of 2022, which affected both the public and private sectors, and there is a high possibility that these filings may increase in 2023. It will impose more burdens on companies providing directors and officers insurance policies.
During the first half of 2022, the SME (Small and Medium enterprises) sectors recorded double-digit increases in business insolvencies. The SME sectors of France, Spain, and Belgium, recorded the highest number of insolvency cases which were dealt under liability insurance policies. As per the report published by AGCS (Allianz Global Corporate & Specialty), the instances of insolvencies & bankruptcy are anticipated to enlarge by 19% in 2023.
A downward trend in the economy refers to the high risk of D&O insurance claims under professional liability insurance policies. A study found that from 2005-2007, the firms in the UK received 200-300 directors and officer insurance claims.
In 2008, the claims under director and officer insurance increased by 75% due to the global financial crisis. The filing and litigation actions increased to 2000 in 2011 compared to 1000 cases in 2006. There will be more litigation processes in 2023 if the financial performance of companies remains poor.
Data security and information protection are the top concern for the directors to look after. The directors can be held responsible for the data breaches due to a lack of robust security and governance. The top-level management of a company needs to protect the data of the company, which comprises information pertaining to stakeholders, company policies and confidential data of planning and management. The data breaches in public sector companies and firms have damaged the confidence of investors and given rise to directors and officers insurance claims.
The companies and their board of directors have faced litigation and lawsuits by activists and environmental groups. The cases are also rising in public sectors. Central Vista could be a perfect example of EGC issues.
Various suits were instituted to object to the Central Vista Projects. However, Delhi High Court and the apex court passed the order in favor of central vista. Moreover, the filing of cases is increasing in international courts and tribunals, giving rise to professional liability insurance claims.
Conclusion
The risk of lawsuits and litigation processes is rising and creating litigation issues for insurance companies and boards of directors. In addition, the ICJ (International Court of Justice) has also recorded several cases for ESG concerns. Furthermore, the confidence of investors has also been damaged due to cyber threats. Lastly, the economic condition is again gloomy in 2023. Hence, more claims will likely be dealt with under professional liability insurance claims.
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