The results of our fifth annual survey of directors’ liabilities, which we run together with international law firm Allen & Overy, are now available. We’ve looked not only at the risks and exposures facing business leaders, but also at how well they feel their insurers are responding.
In all, we surveyed 127 directors, in-house lawyers, risk officers and compliance professionals, working in companies operating all over the world. Our respondents were split roughly equally between public and private companies and were spread across a wide variety of industries.
Since we began publishing this series in 2011, directors in the U.K. have become personally liable for a whole range of new offences, including:
- Bribery, corruption and fraud
- Competition and antitrust matters
- Environmental law
- Health and safety
- Money laundering
- Financial reporting requirements
- Dodd-Frank and other extra-territorial US legislation
The pace of change shows no sign of letting up. At the same time the focus on personal accountability in the boardroom remains as intense as ever, but has now been widened with the publication by the Financial Conduct Authority (FCA) of its plans to extend the Senior Managers Regime throughout the regulated sector.
For the second year running, cyberattack and loss of data both feature prominently in our results, with a quarter of our respondents experiencing over the last year a cyberattack or loss of data serious enough to have been brought to the attention of the board.
A number of key themes emerge from the statistics:
- Over a third of respondents to our survey (33%) have experience of a claim or investigation involving a director of their company, up from 27% a year ago
- Nearly one in four (24%) has experience of a cyber-attack or loss of data significant enough to have been brought to the attention of the board in the last 12 months
- Only 43% are aware of the FCA’s proposals to extend the Senior Managers Regime to all directors of FCA-regulated U.K. companies
- Nearly a quarter (24%) are not aware of the implications of the General Data Protection Regulation for their business
- Some 78% of those who responded are not aware of the individual personal liability that board members can incur for incorrect tax returns in some jurisdictions, such as Italy, Germany and Greece
When it comes to D&O policy coverage, directors are most concerned about:
Interestingly, almost all of these issues relate to efficiency and certainty of claims payment rather than breadth of cover or pricing. This perhaps reflects increased focus by insureds on delivery. That makes sense, at a time when the D&O market is paying out many millions of pounds for settlement of U.K.-based claims.
Reality matches perception
It’s no surprise that in all five of our reports, the threat of regulatory investigation has topped our poll of liability issues. Now there is independent evidence to support the fact that this threat has become reality. As explained in the report, there has been a striking increase from 62 investigations opened by the Financial Conduct Authority against individuals in 2015 to 152 in 2016. I suspect this spike comes too early to be attributable to the senior managers’ regime and is instead a feature of the FCA’s new early intervention policy as explained in my recent blog on this subject.
It will be interesting to monitor these statistics over the next three years as the effects of the senior managers’ regime begin to work their way through the enforcement process.
There is plenty of interesting material to digest in this 23 page report, including a section on cyber and data risk, analysis of developments in regulatory investigations, a focus on the implications of the Insurance Act for D&O policies and some practical considerations for directors in respect of the twin protections of D&O insurance and indemnities including a 10 point checklist.