Managing D&O risk in an evolving regulatory landscape

James Whitaker, head of financial lines coverage, Aon

Running a company in today’s world is no easy task.

Businesses are facing numerous macro challenges and company directors, in particular, must navigate a growing range of complex legislation and regulation that impacts many aspects of their role.

The task of steering a company through this evolving landscape, while simultaneously managing day-to-day operations, is a daunting one.

Directors must contend with various regulatory regimes, including corporate sustainability disclosures, data protection, cyber security – especially as artificial intelligence becomes more integrated into business operations – employment law, health and safety and corporate governance.

Compliance with these ever-changing legislative and regulatory frameworks is vital to avoid regulatory scrutiny, while litigation risk, often stemming from non-compliance, is an ever-present concern.

“Businesses are facing numerous macro challenges and company directors, in particular, must navigate a growing range of complex legislation”

One way to mitigate these risks is through directors and officers (D&O) insurance, which offers essential protection and peace of mind.

However, directors must also stay informed of the evolving legislative environment, regularly update their risk management strategies and ensure they are compliant.

Brokers are well-placed to assist directors in this regard. Often the first point of contact when problems arise, brokers can guide their clients through the initial stages of a claim, helping them take the necessary steps to engage any relevant insurance policies.

Brokers also bring a wealth of experience to the table, allowing them to support company directors proactively by helping them understand emerging regulations and associated risks.

This can be achieved through bespoke client training or workshops, making brokers an invaluable partner in developing compliance and risk mitigation strategies.

Steve Bear, executive director of financial risks, Gallagher

In today’s fast-changing business environment, the c-suite faces numerous challenges that could affect operations. One of the most significant concerns for any board is the potential impact of regulatory change. The ability to adapt and innovate in response to these changes is essential for future success.

Preparing for upcoming regulations allows businesses to mitigate risks, reduce operational costs and protect their brand.

One significant change on the horizon is the EU Corporate Reporting Sustainability Directive, which, while mainly targeting EU-based entities, will also impact non-EU companies with operations in the EU.

Another critical regulatory development is the Economic Crime and Corporate Transparency Act, expected to come into effect in late 2024 or early 2025.

“To manage regulatory risks, directors and officers must assess the potential claims that could arise from failing to comply with legislation”

This legislation introduces a new corporate offence for failing to prevent fraud. Companies will be held liable if fraud is committed for their benefit without adequate prevention procedures in place. This will significantly impact D&O insurance, as insurers will closely scrutinise a company’s policies and procedures when assessing risks.

To manage regulatory risks, directors and officers must assess the potential claims that could arise from failing to comply with legislation. They must understand the implications of these regulatory changes and prioritise implementing strong compliance procedures.

Working closely with brokers to review and reassess their D&O insurance coverage will help businesses navigate this complex landscape and position themselves for long-term success.

Nigel Adams, founder and chief executive, Severn Bay Corporate Solutions

The landscape of company regulation evolves every year and… this process could accelerate even further.

In such circumstances, company directors may find it increasingly difficult to stay on top of regulatory changes, many of which are implemented with minimal communication or publicity.

Despite these challenges, directors remain personally liable for their actions while performing their roles.

Even if a company agrees to indemnify them under the articles of association, directors may still face legal costs. Often, claimants’ solicitors will send writs to multiple individuals, hoping one will respond – this can include writs addressed directly to directors, sometimes sent to their home addresses.

Legal costs associated with these actions are typically not covered under a company’s legal expenses policy, which is why D&O insurance is essential.

“In some cases, brokers can provide real-time updates as information becomes available, enabling directors to make informed, timely decisions.”

This type of insurance addresses claims against individual directors and officers, protecting them from personal financial risk.

While clients should ideally read their insurance schedules, statements of fact, cover summaries and policy wordings, the reality is that many directors rely on their professional advisers to recommend solutions that meet their needs.

Insurers often proactively share updates with their broker partners to enhance policy offerings, catering to new regulatory requirements.

In some cases, brokers can provide real-time updates as information becomes available, enabling directors to make informed, timely decisions.