As capability for writing D&O enterprise in Canada will increase, what D&O claims traits are on the radar of Canadian P&C insurance coverage professionals?
Doubtless, COVID-19-mandated enterprise shutdowns drove down loss ratios in 2020-22. For instance, the 52.4% loss ratio recorded for the primary three quarters of 2022 was “the business’s greatest begin to an underwriting yr since 1975,” because the Canadian Property and Casualty Insurance coverage Compensation Company (PACICC) reported in 2022. “It beat the earlier ‘greatest’ reported in 2021 [2021 Q3: 53.9%].”
And, within the aftermath of COVID-19, claims are predictably trending up. However sources say the anticipated rise of claims in D&O strains has not been important.
“In contrast to what we had been seeing within the U.S. final yr for securities class actions towards publicly traded firms, the place we noticed a rise again to our COVID ranges, in Canada [it] has been trending down,” says Ruth Kochenderfer, managing director at Marsh in Washington, D.C. “Solely seven filed [in Canada] in 2023.”
And fewer of these had been associated to inventory values as anticipated, she provides. There have been a pair within the mining or vitality industries, “however actually not [many in] one specific business. It was type of a bit unfold out amongst specific industries when it got here to these filings.”
Katherine Gauthier is vice chairman of E&O, D&O, and crime at Intact Specialty Options Canada. She reviews claims traits are usually in keeping with what you’ll discover in D&O insurance coverage, with a gradual improve in some D&O claims associated to the opening of the financial system after the pandemic.
“All through the pandemic, and post-pandemic, due to the [government financial] help methods, we didn’t see as many bankruptcies as we could had anticipated, nor did we see as many employment practices claims when it got here to layoffs or harassment claims,” says Gauthier.
“Nonetheless, as we transfer previous that, we’re starting to see — not essentially a important uptick in frequency on the subject of Employment Practices Legal responsibility-type claims — however we’re seeing claims with respect to wrongful dismissal or harassment, and we’re beginning to see that frequency development up, as we’d anticipate.”
International considerations
The rise of geopolitical tensions is on underwriters’ radar as properly. That is significantly true of Canadian father or mother firms which have places of work in the USA or internationally.
Within the U.S., the upcoming election is pitting two events which have referred to as for commerce limitations towards Canadian assets towards one another. And Russia’s invasion of Ukraine continues to disrupt provide chains, as do a number of conflicts all through the Center East.
The geopolitical panorama “is one thing we’re conscious of, and the way does it affect our clients?” says Daniel Lee, head of economic strains at Zurich Canada.
“It’s only a matter of [asking], ‘Okay, how are [our clients] impacted by a number of the geopolitical modifications? And with the onset of upcoming elections, main elections all through the world, how is that impacting, or how might [it] affect, our shoppers’ enterprise?”
One D&O skilled tells CU she’s “change into much more of a Political Science fanatic than I ever thought I’d.”
Tech troubles
D&O underwriters have gotten tech nerds as properly. Many are seeing extra tech-related claims launched towards firm administrators, because the worlds of D&O and cyber start to collide.
Particularly, some boards of nascent or burgeoning synthetic intelligence (AI) firms are seeing claims come by way of for statements made about their AI capabilities. Underwriters are beginning to bandy concerning the time period ‘AI-washing.’
“AI washing is much like the time period ‘greenwashing’ that’s tied to the local weather, during which firms are allegedly overstating their AI capabilities,” Kochenderfer says. “We’ve seen a number of of these this yr, already filed. It’s virtually a standard threat, when you overstate what your organization is doing, versus being a very distinctive AI-type threat.
“I feel a number of the firms [targeted in these claims] could also be extra AI-true. For instance, that’s one in all their predominant merchandise, or they’re pivoting to change into that.”
Nevertheless it’s not simply AI: underwriters are seeing extra tech-related claims towards firm administrators.
“I’d say we’re speaking about know-how advances,” says Gauthier. “For instance, the usage of synthetic intelligence or AI, be it within the skilled legal responsibility house or inside the D&O house, [underwriters are] contemplating how that may disrupt the enterprise, or how the enterprise can use it [for] help.
“How any firm makes use of a brand new know-how may be seen positively or negatively. And we’re wanting on the company’s governance round that.”
Cyber claims at the moment are reaching the board degree, too, provides Gauthier.
“We’re seeing somewhat little bit of a connection to cyber claims, which might evolve into the potential for a D&O declare or a legal responsibility declare. Administrators and officers have an obligation to forestall cyberattacks, to have sturdy controls. And naturally, that obligation places them prone to a cyber occasion leading to a possible legal responsibility or declare towards them.”
This text is excerpted from one showing within the August-September 2024 print version of Canadian Underwriter. Function picture courtesy of iStock.com/CSA Pictures
