The Big Question: How can brokers support directors to navigate new regulations and mitigate the risk of D&O claims?

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.

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.

Andy Coleman, D&O class underwriter, OneAdvent

We’re seeing a shift in the role of brokers across the market, but particularly in specialist lines like D&O. They are becoming valuable risk advisory partners, who offer more than just ’simple’ placement of risk.

Proactivity is key. Brokers can, and should, stay informed on pending regulatory developments that could impact D&O risks and work with industry associations and legal experts to learn more about emerging trends.

As environmental, social and governance (ESG), factors continue to gain importance, brokers can help directors to understand and navigate these risks and ensure they remain compliant with evolving regulations and targets.

The D&O market is beginning to soften and though it won’t be difficult to find cover for clients, brokers really need to make sure they’re working with expert providers that know and understand the complexities of the market and can offer the best cover, rather than chasing costs.

Brokers should also work with insurers that are experts in this complex area and seek the appropriate wording available to cover the range of circumstances that could give rise to a claim and ensure they are adequately protected.

There are a number of useful resources that brokers can signpost for their clients too, including seminars for brokers and their clients run by expert corporate lawyers. The Institute of Directors also has some excellent guidelines.

It’s vital for brokers to maintain an open channel of communication, facilitating conversations between directors, insurers and legal experts to help directors navigate the complex regulatory landscape and reduce the risk of D&O claims.

Though the extent to which they can help mitigate the risk of a claim is limited, by having an excellent understanding of the regulatory landscape and maintaining strong relationships with key stakeholders, brokers can act in a better advisory capacity to their clients.

Steve Bear, executive director of financial risks, Gallagher

In today’s fast-changing business environment, c-suites face 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 European Union (EU) Corporate Sustainability Reporting 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.

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, with the potential of a new government, 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.

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.

An independent, FCA authorised broker can recommend a suitable product following a comprehensive fact-find, ensuring the coverage fits the client’s specific requirements.

A good broker will be more than happy to discuss a client’s needs in detail to ensure the best possible solution is in place. Should any changes arise throughout the year, brokers are also ready to provide advice on how these changes might impact legal liability and help mitigate potential risks.

Brokers have access to up-to-date information from a variety of sources, including insurers, managing general agents (MGAs), industry publications, trade associations and Lloyd’s of London.

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.