U.S. companies deemed to have superior environmental, social and governance practices will be eligible for enhanced terms on directors ‘and officers’ liability insurance policies as part of a leading brokerage initiative.

Marsh McLennan‘s

MMC 0.68%

The brokerage unit has partnered with international law firms and four major insurance companies to reward corporate clients for their tremendous efforts in increasingly high profile areas, including disclosures and representations on the market. climate change, Marsh executives said.

Directors ‘and officers’ insurance is a commodity purchased by listed companies. It is designed to protect companies and their individual directors and officers if they are sued by their shareholders.

Law firms, with expertise in litigation and ESG regulation, will review, assess and in some cases strengthen the ESG programs and policies of Marsh clients. Marsh brokers will seek coverage for these clients from the four participating carriers, with the goal of securing improved terms and conditions for those with superior ESG practices.

Participating insurers don’t offer lower insurance rates to applicants who appear to be the best risks, but carriers will consider lower deductibles, Marsh said. They will also consider higher limits in certain areas of coverage as well as certain other potentially favorable terms and conditions.

A unit of AIG is participating in a program aimed at offering policyholders better conditions for civil liability insurance for directors and officers.


Photo:

John Marshall Mantel / Zuma Press

The carriers would also make their own underwriting, in order to further assess the risk. The improved terms would apply to ESG exposures, not their overall D&O package, Marsh said.

As companies invest in ESG programs, “it is fair that companies that really invest to improve their ESG status are recognized as a better risk by underwriters,” said Maureen Gorman, managing director of the financial and professional division of Marsh in the United States. .

Shareholder activism and litigation around ESG issues is on the rise, while D&O insurance premiums have been rising at double-digit rates lately.

American International Group Insurance Units Inc.,

AIG 1.27%

Berkshire Hathaway Inc.,

BRK.B 0.84%

The Japanese companies Sompo International and Zurich North America are participating. Law firms include Norton Rose Fulbright and Orrick, Herrington & Sutcliffe LLP.

D&O policies can cost millions of dollars each year, depending on the size and risk profile of a business, and policyholders often have multi-million dollar deductibles that they must pay before the proceeds of the business. insurance is not applicable. “It’s not uncommon for a mid-sized business in today’s market to purchase a $ 200 million D&O policy with a $ 5 million deductible for each claim,” said Ms. Gorman.

In recent reports, rating agencies have highlighted the risks insurers face when setting appropriate pricing for coverage. S&P Global Market Intelligence said this month that ESG issues represent “an emerging risk of heavy litigation that insurers face.”

In April, insurance rating firm AM Best Co. cited an increase in lawsuits and the scale of awards and jury settlements. Best said companies could suffer reputational damage due to their inability to disclose climate change risks, or face lawsuits from shareholders alleging either companies’ inaction to address issues of climate change. diversity, or the failure of boards of directors to act on diversity goals.

The way companies disclose and manage ESG issues is also under closer scrutiny from regulators. The United States Securities and Exchange Commission has said its disclosure rules should be revised to include weather risks, and it is working on how to achieve this.

Financial services, including insurance, represent a new front line in driving change. In April, BlackRock Inc.

said it has entered into a financing deal with a group of banks that ties its lending costs for a $ 4.4 billion credit facility to the achievement of certain goals, such as goals for women in senior management and black and Latino employees in its workforce.

Many companies in the United States pay significantly higher rates for D&O insurance, while facing more stringent conditions. According to the Marsh Global Insurance Market Index, as US D&O price increases slowed, listed companies renewing their policies faced 10% increases in the third quarter by report to the quarter of the previous year.

Marsh plans to launch the product in the UK and other countries in the near future.

Write to Alice Uribe at [email protected] and Leslie Scism at [email protected]

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