Research

UK Directors liability: Entering uncharted territory

September 15, 2017
| United Kingdom

We are pleased to publish the 2017 annual report on directors’ liabilities and Directors and Officers (D&O) insurance that we have produced in conjunction with international law firm, Allen & Overy.

Within the report Directors liability: Entering uncharted territory, we have revisited several of the themes that have consistently presented themselves in previous years, as well as highlighting several new developments that add to the breadth of concerns keeping directors and officers awake at night.

We have looked not only at the risks and exposures facing business leaders, but also how well they feel their insurers are responding. In all, we surveyed 127 directors, non-executive directors, in-house lawyers, risk officers and compliance professionals, working in companies operating all over the world. We thank them all for taking the time to complete our survey and allowing us to create this market snapshot.

What does make it on to the agenda of directors and officers this year for the first time is the uncertainty surrounding macro-economic events: 38% of our respondents identified concerns in a post-Brexit landscape among the risks of greatest significance to their business, and 59% told us the current geo-political uncertainties create a significant additional risk to their businesses. This is why we have called this year’s report Entering Uncharted Territory.

Our respondents were split roughly equally between public and private companies and were spread across a wide variety of industries, illustrated below:

UK Directors liability: Entering uncharted territory

There are other new risks on the horizon for executives from a regulatory standpoint too, and in this year’s survey we once again drew our respondents’ attention to several new pieces of proposed and actual legislation that serve to expand the risk of personal liability. For example the Financial Reporting Council’s proposals to extend its sanction regime to all directors of UK listed companies, the General Data Protection Regulation, and 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 protection, our respondents continue to tell us that they want policy terms that are clear and easy to follow, and this year many are also focused on restricting insurers’ ability to refuse a claim based on non-disclosure. Many worry about how claims against directors and officers will be controlled and settled, about whether their D&O policy and company indemnification will be able to respond to claims in all jurisdictions, and about the coordination of the D&O policy with a company’s indemnification obligations. Given the rising levels of personal liability, it is little surprise to see these issues on the agenda of directors and officers around the world.

We hope you find our coverage and analysis useful. Should you require any further information on any of the issues raised here, please do not hesitate to get in touch with us and with your usual contact at either Allen & Overy LLP or Willis Towers Watson.

Our key findings:

When conducting the research for this year’s survey, we interviewed 127 individuals, comprising directors, non-executive directors, in-house lawyers, risk officers and compliance professionals.

Our respondents were split roughly equally between public and private companies and were spread across a wide variety of industries. In all, 37% were based in companies that conduct the majority of their business in the UK, while 33% described their businesses as global, 21% operated across EMEA, 6% in the U.S. and 5% in Asia Pacific.

A number of key themes emerge from the statistics and analysis contained in the following pages:

  • 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 Financial Conduct Authority’s proposals to extend the Senior Managers Regime to all directors of FCA regulated UK 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 that their policies have clear and easy-to-follow policy terms; that they restrict insurers’ ability to refuse a claim based on non-disclosure; and as to how claims against directors and officers will be controlled and settled.