D&O - Whats the Risk in 2021?

In this insight piece we look at three of the latest emerging risks and sources of claims in the D&O world.

1. Insolvency

It’s no secret that the pandemic has left the economy quite worse for wear. Couple this with the impact of Brexit and consistent years of lower and lower interest rates and you have the perfect storm for companies to experience economic hardship. Inevitably, some businesses will not survive, and when that happens, shareholders and investors look to the decisions made by senior leadership to understand what when wrong and why.

Company Watch reported recently that insolvencies in August are up 22% from July, and the trend is expected to continue. With the expiry of the memorandum on creditor actions (winding up petitions and statutory demands) on October 1st, all the signs point to a tough time for insolvency claims.

2. Cyber Risks

The vast majority of workers suddenly found themselves working from home in March 2020, and the practice of homeworking has now become well embedded into day-to-day life, with the majority of companies now adopting a hybrid working model, and a big minority remaining entirely remote.

However, for all the benefits of homeworking, some firms are still struggling to adapt to the security concerns raised by these new practices. Whilst the overnight shift left many firms unprepared, a good amount have now adapted their policies and procedure to enable robust security for their sensitive client and business critical data. However, many others remain exposed to the exposures such hybrid models bring, even 18 months on. This is especially true of employers who allow employees to work from anywhere, such as internet cafes or similar.

Social engineering and simple employee errors such as misplacing laptops and files in public places also remain high up on company’s risk radar.

3. ESG & Climate Risks

The “known unknown” of climate and ESG risks for D&O providers is likely worthy, and certainly has already been subject to, several in-depth articles. Worldwide businesses, especially the larger petrochemical and similar ones, are finding themselves subject to claims relating to the part they allegedly have played (and continue to play) in causing climate change. The US is particularly prevalent for these actions, where approximately 75% of claims were brought in up to May 2020.

Whilst around 80% of claims outside the US have been brought against government bodies, there is an increasing trend of action groups targeting private companies.

Companies are now expected to not only to have robust and socially conscious ESG, but to act on these (especially if they want to avoid so called “greenwashing” claims) and constantly strive to improve on these processes. Employees are also now more than ever likely to look for employers with strong ESG policies and actions.

Pinset Mason have a produced an excellent breakdown of climate risks to companies, which you can read here